Samak Sundaravej has withdrawn from next week's Thai parliamentary vote to choose a new prime minister, a close aide said today.
His decision came hours after parliament postponed the vote to Wednesday, heading off a collision with protesters bent on blocking Mr Samak's return to office just days after he was forced to quit.
"He said he did his best to protect democracy. From now on it's up to the party to decide what to do next," Thirapol Noprampa, a former official in the prime minister's office, said.
House speaker Chai Chidchob had pushed back the special House of Representatives session after many MPs failed to turn up, suggesting 24 hours of back-room wheeling and dealing in Mr Samak's six-party coalition had failed to reach a conclusion.
Police with shields guarded parliament, where hundreds of government supporters had gathered during the day, raising fears of a potential clash with anti-government demonstrators camped a few kilometres away in Mr Samak's official compound.
One big faction of 70 MPs within the People Power Party (PPP) disagreed with putting Mr Samak forward, and one member even suggested acting Prime Minister Somchai Wongsawat should dissolve parliament and call a snap election.
"When there seems to be no way out and parliament can't find one, a possible solution is to return power to the people to decide at the ballots," Jatuporn Prompan told reporters.
Mr Samak's return to office only three days after a court found him guilty of a conflict of interest for hosting TV cooking shows would have intensified a three-month-old street campaign against him and his government.
The People's Alliance for Democracy (PAD), whose occupation of the Government House compound is now in its third week, said they would not accept Samak or anyone else from the PPP as prime minister.
The Constitutional Court ruled on Tuesday that Mr Samak, accused by the PAD of being a puppet for ousted prime minister Thaksin Shinawatra, broke the law in hosting cooking shows on commercial television while in office.
The court's ruling against the 73-year-old removed him from the premiership but did not ban him from returning.
The main stock market index ended 1.2 per cent higher after the vote delay, with investors relieved that a potential flashpoint had been avoided, for now at least.
The stock market has fallen around 25 per cent since the PAD launched its street campaign at the end of May, triggering policy paralysis at a time of stuttering economic growth and decade-high inflation.
The postponement simply puts on hold the fundamental conflict between the rural and urban poor who supported Mr Thaksin, who was ousted in a 2006 coup, and Bangkok's middle and upper classes who despise him.