Baillieu made the move public after a 20-minute meeting at 7pm in Melbourne, during which there were reports of applause throughout.
Victoria’s racing minister Denis Napthine has stepped into the role and has now been sworn in at Government House.
Before informing the Governor he told media: “This evening I have tendered my resignation as leader of the Parliamentary Liberal Party in Victoria and I will shortly visit the Governor to tender my resignation as the Premier of Victoria.
“Can I say I love this state, I love the Liberal party and I love this role that I have had the honour to enjoy over the last two and a bit years.
“I have appreciated the honour immensely of being the leader of the Parliamentary Liberal Party over the last seven years but it is apparent to me that a change of leadership is in the best interests of the government.”
As is customary in such situations, he gave his successor his full backing.
“I want to put my full support behind the new leader of the Parliamentary Liberal Party Denis Napthine and to indicate that I will be staying on in Parliament to support him.”
Dr Napthine, also as is customary, paid tribute to his predecessor, saying he’d build on the “foundation” set for him.
“I was elected as leader of the Liberal Party and I will accept with humility that challenge and that opportunity,” he said. “Mr Baillieu made his own decision to stand down.”
“This wasn’t what I expected when I had my Special K for breakfast this morning,” he said.
Sandringham MP Murray Thompson was Dr Napthine’s competition, but only briefly.
“I’m very happy for him; in fact, he’s one of my best friends in politics,” Thompson said. “He’s like a father figure. Of course I’m happy for him.”
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