Calls are growing among his MPs for UK Prime Minister Sir Keir Starmer to be replaced, while he has said he will "get on with governing".
It is a dramatic turnaround for the man who won a landslide victory two years ago but has since made several U-turns on unpopular policies and faced a series of scandals.
Several key government figures have resigned in a sign of growing discontent after the Labour Party lost almost 1,500 councillors in local elections across England last week.
Former Deputy Prime Minister Angela Rayner, former Health Secretary Wes Streeting and Greater Manchester Mayor Andy Burnham are seen as among the possible contenders to lead the UK.
How did we get here?
The current leadership crisis was triggered by a round of local elections last week, but discontent towards Sir Keir's leadership has been mounting for some time.
Last year, Sir Keir's government changed direction on three major policies in a month after pressure from within his own party.
Earlier this year it was revealed Lord Mandelson had been appointed as British Ambassador to the US despite failing vetting for the role.
Questions had already been raised about Sir Keir's judgement in light of Lord Mandelson's links to convicted sex offender Jeffrey Epstein.
This set the stage for the Labour party to suffer in local elections last week.
Labour's losses were compounded by a surge in support for Nigel Farage's party Reform UK, a new political force challenging the traditional opposition, and the left-wing Green Party.
As the defeats mounted, one Labour MP - Catherine West - declared she would challenge Sir Keir for leadership if another candidate did not do so by Monday.
Since then, West has rowed back on her candidacy but nearly 90 MPs have called for the prime minister to resign or set out a timetable for his resignation.
Who could challenge the PM for leadership?
Angela Rayner
Rayner, who grew up in one of Manchester's poorest areas, is favoured by some on the left of the Labour party.
The self-described "proper working-class" woman was Sir Keir's deputy prime minister until last September when she resigned over failing to pay enough tax on an apartment, resulting in an investigation from the British tax authorities.
However, on Thursday she settled this affair saying she had been "exonerated" from the accusation she had "deliberately sought to avoid tax".
The investigation had been seen as an obstacle to her leadership so now the runway is cleared for a possible run to be prime minister.
Her against-the-odds story, personality, and ability to connect with parts of the electorate that might be less accessible to others, could make her a formidable opponent in any Labour leadership contest.
Andy Burnham
Greater Manchester Mayor Andy Burnham, nicknamed the King of the North for his popularity, has twice run for Labour leadership and lost.
His record as mayor, though, has seen him elected three times, drawing praise for his transformation of the region's transport system and defence of the North of England during the pandemic.
To be in the running for prime minister, he would have to be an MP and earlier this year he was blocked from doing so by Labour's decision-making body.
Now though, one MP has said they will stand down to make way for Burnham. This would trigger a contest for the seat in parliament.
Downing Street has indicated that it will not seek to block him from becoming the Labour candidate, though the rise of Reform UK and the Greens could be what prevents him from taking the seat.
Burnham has said he would run for the seat on the promise to "make politics work properly for people" across the UK.
Wes Streeting
Born in east London in 1983 to teenage parents, Streeting grew up in poverty.
He has quietly been clearing the decks for a leadership run for some time - even taking the unusual step of releasing private messages he had exchanged with Lord Mandelson, insisting they had never been close friends.
As health secretary, he earned plaudits - including from political opponents - for his ambitions to shake up the health service and give greater powers to patients. But also faced criticism for continued industrial action over doctors' pay.
On Thursday he resigned from the post, saying he had lost confidence in the prime minister's leadership.
In his resignation letter, he said Labour needed a vision but instead "we have a vacuum".
While he did not announce a challenge to Sir Keir, allies had said he could do so soon.
His supporters believe he has the political skills and fluent style to sell Labour's message more effectively than Sir Keir, but as a figure on the right of the party he might struggle to appeal to more left-leaning colleagues.
Will Starmer resign?
The rising tide of voices against Sir Keir does not guarantee he will step down.
In fact, he told has told his cabinet he will "get on with governing", warning that a leadership contest could result in "chaos".
Sir Keir also stressed the Labour party has a formal process for challenging a leader "and that has not been triggered". A candidate wishing to launch such a contest must have the support of 81 MPs.
More than 150 MPs have indicated support for the PM or say it is not the right time to contest his leadership.
What happens next?
After that, members of the party would vote on their preferred candidate.
If Sir Keir is replaced before July, the next prime minister will be the seventh for the UK in the past 10 years.
Unless that process begins, then Sir Keir will remain in Downing Street, with the next general election scheduled to be held no later than 15 August 2029.
