Tony Blair announced today he is standing down as Labour leader and Prime Minister on June 27 - in the same room where he launched his leadership campaign in 1994.

Addressing his local Labour club in his Sedgefield constituency he finally put an end to months of speculation over when he would leave office.

The announcement now paves the way for the Chancellor Gordon Brown to get his hands on the keys of No. 10, a deal many said took place years ago.

In a powerful and emotional speech Mr Blair said: "I have come back here to Sedgefield, to my constituency, where my political journey began and where it's fitting that it should end.

"I have been Prime Minister of this country for just over 10 years. In this job, in the world today, I think that is long enough for me, but more especially for the country.

"Sometimes the only way you conquer the pull of power is to set it down."

Mr Blair admitted that taking the country to war may have been wrong but in a conciliatory speech told the audience: "Hand on heart I did what I thought was right. I may have been wrong - that is your call. But believe me, I did what I thought was right for the country.

"I came into office with high hopes for Britain and I leave with even higher hopes."

Mr Blair said it had been "an honour" to serve the British people, thanking them for their support and apologising for when "I have fallen short".

He added: "This is the greatest nation on earth and it has been an honour to serve it. I give my thanks to you the British people."

The announcement comes only two years after the 2005 general election when Mr Blair pledged to serve a full third term if Labour was victorious.

But Mr Blair has been forced from office earlier than expected thanks, in part, to discontent among Labour backbenchers.

Last summer rebel MPs succeeded in forcing Mr Blair to outline his departure timetable.

They signed a letter demanding his immediate dismissal and the crisis within the party was only resolved when Mr Blair agreed to quit this year.

Mr Blair will continue as both Labour Leader and Prime Minister for another seven weeks and will represent Britain at forthcoming G8 and European Union summits.

His announcement in County Durham will trigger a leadership contest and hopefuls for both the top job and Deputy leader have until the middle of next week to secure the 45 needed names to get on the ballot.

Mr Blair will head to the Palace on June 27 to formally resign as Prime Minister and hand over the Seals of Office to the Queen.

He will be followed by the new leader who will be invited by Her Majesty to form a new Government.

Potential challengers, including Home Secretary John Reid, Environment Secretary David Miliband and former Home Secretary Charles Clarke, have ruled themselves out of the race.

Mr Blair will go down in history as the first Labour leader to serve two full terms as Prime Minister and to win three elections.

Yesterday he insisted he intended to continue running the country until the moment his successor takes over in the House of Commons.

But it is thought Mr Blair will be absent from Downing Street for much of his remaining time in Office with overseas trips planned, including a visit tomorrow to Paris to see French president-elect Nicolas Sarkozy.

Chancellor Gordon Brown is favourite to take the keys of No. 10 but left-wingers Michael Meacher and John McDonnell hope to mount a challenge.

The two MPs have agreed that the one with the most support will become the single left candidate in order to ensure that Brown faces a challenge and will announce who will go forward this afternoon.

Even if there is no challenger, Mr Brown will still have to fight a contest and attend hustings meetings across the country.

Deputy Prime Minister John Prescott is also expected to resign later today, which will also trigger a deputy leadership contest.

Already six candidates have registered their interest in the post, including Northern Ireland Secretary Peter Hain, International Development Secretary Hilary Benn, Education Secretary Alan Johnson, Labour Chairman Hazel Blears, left-winger John Cruddas and Justice Minister Harriet Harman.

Whoever wins will become Labour's next deputy leader - but it will be up to the Prime Minister to decide whether they also become Deputy Prime Minister.

  • Click here to read Blair's speech in full