Shimon Peres was ousted as Israel's Labour Party leader on Thursday in an upset victory for a trade union chief whose vow to end a ruling alliance with Prime Minister Ariel Sharon could trigger early elections.
Amir Peretz, 53, largely unknown on the international stage, was declared the winner of a rank-and-file ballot by a 42 to 40 percent margin over Peres, Labour's elder statesman who has never won a general election.
Peretz's victory appeared to reflect support for his call for a return to center-left Labour's socialist roots and anger at Peres, 82, for failing to revive Israel's once-dominant party after its crushing defeat in the 2003 election.
"I expected a better evening," a glum Peres told a news conference, clearly stunned by what commentators called an upheaval in Israeli politics.
Polls had predicted that Peres, an architect of now-tattered peace deals with the Palestinians, would coast to victory.
Amid chants of "the next prime minister" from supporters, Peretz, head of Israel's Histadrut trade union federation, said: "This can truly be Israel's most important hour."
Peretz pledged to pull the party out of Sharon's coalition over free-market reforms and spending cuts he said have worsened the plight of Israel's poor.
Sharon has relied on Labour's support to survive parliamentary no-confidence votes against his government, already shaky because of divisions in his rightist Likud over Israel's Gaza pullout in September.
Peretz said he would call Sharon on Friday to set up a meeting, and Israel's Army Radio said he would push the prime minister to set a date for early elections, which are not due until November 2006.
"We will notify the prime minister that we want to leave. We want to leave ... certainly out of a desire to turn the Labour Party into an alternative that intends to take power in the next elections," Peretz told supporters.
But Labour, the party that founded the Jewish state in 1948 and later became the standard-bearer for peacemaking, is now weaker than ever as voters hardened by a five-year Palestinian uprising have abandoned it for Sharon's tough military approach.
Peres, a long-time personal friend of Sharon despite political differences, had made clear he wanted to help keep the government intact as long as possible, Reuters reports.