Luxembourg will hold new elections after Prime Minister Jean-Claude Juncker announced he would resign following a secret service scandal.
Mr Juncker, Europe's longest-serving head of government, told parliament he would step down on Thursday.
The move came as his junior coalition partner called for the dissolution of parliament and early elections.
It follows claims he failed to stop illegal security agency activity such as phone-taps and corruption.
Mr Juncker has been prime minister since 1995 and was head of the Eurogroup of eurozone finance ministers between 2005 and January 2013.
'Not my top priority'
"I will convene the government tomorrow morning at 10:00 (08:00 GMT) and will go to the Palace to suggest snap elections to the Grand Duke," he said on Wednesday.
Luxembourg's parliament had reviewed a report alleging a series of cases of misconduct by the country's SREL security agency, which the prime minister oversees.
It included claims of illegal bugging of politicians, the purchase of cars for private use and payments in exchange for access to local officials.
Mr Juncker has denied any wrongdoing but has faced criticism that he focused too much on his eurozone duties.
"The intelligence service was not my top priority," he told parliament in a two-hour speech.
"Moreover, I hope Luxembourg will never have a prime minister who sees SREL as [his or her] priority."
But there were demands for action from Mr Juncker's coalition partner, the Socialists (LSAP).
"We invite the prime minister to take full political responsibility in this context and ask the government to intervene with the head of state to clear the path for new elections," LSAP President Alex Bodry said.
The report was commissioned after a Luxembourg weekly newspaper published a secretly-taped conversation from 2008 between Mr Juncker and the head of SREL at the time, Marco Mille.
Mr Mille revealed that his staff had secretly recorded a conversation involving Luxembourg's Grand Duke and that the sovereign was in regular contact with Britain's MI6.
It was not immediately clear whether the outgoing prime minister and head of Luxembourg's centre-right Christian Social Party (CSV) was planning to fight the next election, which must be held within three months.
As head of state, only the Grand Duke can officially dissolve parliament.
The current government would then remain until elections take place, but it would be unable to pass any new laws.
However, with parliament due to go on its summer break, it would be unlikely that the government would face any important decision-making for some months.