Mr Rudd was convinced to step aside after it became obvious during an emergency caucus meeting that he did not have the support of enough MPs to continue serving as prime minister.
The British-born Ms Gillard was reportedly backed by at least 75 of the Labour Party’s 115 MPs, sending a clear and emphatic message to Mr Rudd that it was time to go.
The threat to Mr Rudd’s leadership emerged on Wednesday night, after senior Labour powerbrokers told him that he had lost their support and Ms Gillard revealed that she would challenge him.
The prime minister was urged to step down, but a defiant Mr Rudd announced that he would go to a vote.
After a night of frantic phonecalls to gauge support, Mr Rudd decided not to stand against Ms Gillard, handing her the prime ministership unopposed.
The move against Mr Rudd came amid fears that he could not win an election later this year, and hopes that Ms Gillard, who is seen as more voter-friendly than the rage-prone Mr Rudd, had a far better chance.
Ms Gillard is considered to be a consummate political performer, and is viewed by the public as warm and trustworthy. Born in Barry, Wales, her family came to Australia as “Ten Pound Poms” in 1966. She became engaged in politics at university, while training to be a lawyer, and entered parliament in 1998.
However, there is no guarantee that Ms Gillard’s move to take charge of the party will put and end to Labour’s problems. Ms Gillard was part of Mr Rudd’s “gang of four”, a small group of MPs consulted by Mr Rudd over policy issues. She had a hand in the scrapping of the emissions trading scheme, which infuriated the electorate and could leave her tarred with the same brush as Mr Rudd.
The political violence of the past 24 hours is also expected to badly damage and divide the party, and further anger voters just months from an election.
The leadership spill comes amid increasing public frustration with the government.
The Labour Party has a primary vote of just 35 per cent, with the Liberals polling 40 per cent.
The dire outlook for Labour was triggered a series of unpopular decisions made by Mr Rudd, including the announcement in April that the government was shelving its flagship emissions trading scheme. Mr Rudd was also embroiled in a high profile fight with the mining industry over his planned 40 per cent super profits tax on resources.