Malcolm Turnbull has ousted Tony Abbott as Australia's Liberal leader, winning a partyroom ballot 54 votes to 44.
Julie Bishop defeated Kevin Andrews for the deputy leadership 70-30, after Michael Ronaldson joined the meeting to take the total voter numbers to 100.
Speaking to media after the result, Mr Turnbull praised New Zealand Prime Minister John Key and what he had been able to achieve across the Tasman.
"We need to have in this country and we will have now, an economic vision, a leadership that explains the great challenges and opportunities that we face."
He said Mr Key had been able to achieve significant economic progress by explaining complex issues and making the case for them.
Mr Turnbull said the country had to be agile and smart to adapt to the future.
"There has never been a more exciting time to be an Australian."
Mr Key said: "I congratulate Malcolm Turnbull and wish him the best.
"For the last two years Tony Abbott has been a loyal friend of NZ and we thank him for that.
"Tonight will be a difficult time for him and his family.
"I am confident our close and critical relationship with Australia will continue unchecked with the change of Prime Minister."
The change in leadership comes as the 2-year-old conservative coalition government struggles in opinion polls.
Liberal Party whip Scott Buchholz told reporters lawmakers voted 54 to 44 to replace Mr Abbott with his chief rival, Mr Turnbull.
Media mogul Rupert Murdoch says the new Liberal leader needs to hold an early election before Labor dumps its leader.
"Sad to see such a decent man as Abbott toppled," Murdoch tweeted shortly after Turnbull won a partyroom ballot.
"Now Turnbull needs a November election before Labor sacks Shorten."
The vote continues an extraordinarily volatile period in Australian politics.
Turnbull becomes Australia's fourth prime minister in just over two years.
He will become Australia's 29th prime minister once he is sworn in by the governor-general, most likely on Tuesday.
In February, Mr Abbott said his party's leadership issue was "behind us" after he survived a secret ballot 61-39.
The Liberal MP who sought the leadership spill in February says he's looking forward to the government improving its stocks.
Luke Simpkins sought a spill which managed to gain 39 votes, even though there was no declared contender against Tony Abbott.
"I think Tony's a great guy and a man of great principle but unfortunately, as I said before, people weren't listening anymore. Now we're looking forward to a new beginning for the government," Mr Simpkins said.
The Liberals were elected in 2013 as a stable alternative to the then-Labor government.
Labor came to power under Kevin Rudd at elections in 2007, only to dump him for his deputy Julia Gillard in 2010 months ahead of elections.
The bitterly divided and chaotic government then dumped Gillard for Rudd just months before the 2013 election.
Before Rudd was elected in 2007, John Howard was in power for almost 12 years.
Monday night's contest pitted a man who has been described as the most socially conservative Australian prime minister in decades against a challenger some think is not conservative enough.
WHAT THEY SAID AFTER TURNBULL TOOK LEADERSHIP
Independent senator Jacqui Lambie: "I'm wrapped. Australia now after two years of the coalition being in government is now open for business. Certainly as long as the policies change along with the leader then there's a good chance we'll get Australia back on its feet."
Independent senator John Madigan: "The new prime minister may have the support of the party room but he doesn't have a mandate. Now it's time to put it to the people."
Opposition Leader Bill Shorten: "Australia doesn't need another Liberal Leader - we need a change of Government, and Labor's up for the fight. Australians know that with Malcolm, it will always be about Malcolm."
Greens MP Adam Bandt: "A new PM. A chance for a new direction on climate change? Or has he made promises to deniers to get the gig?"
Earlier, Mr Abbott arrived at 11pm before the doors closed with a group of about 20 supporters.
They included backbenchers Karen McNamara and Natasha Briggs as well as a number of cabinet ministers including Joe Hockey, Peter Dutton, Mathias Cormann and Eric Abetz.
"The prime ministership of this country is not a prize or a plaything to be demanded," Mr Abbott told reporters at Parliament House tonight, two hours after Mr Turnbull advised him of the challenge and his decision to quit cabinet.
Mr Abbott said he expected to win the ballot held in a special Liberal partyroom.
"I am dismayed by the destabilisation that's been taking place now for many, many months and I do say to my fellow Liberals that the destabilisation just has to stop," he said.
"I firmly believe that our party is better than this, that our government is better than this and, by God, that our country is so much better than this."
Mr Abbott said since coming to government, his team has stopped the boats, improved the budget, cut taxes and increased jobs.
"We have laid the foundation for a better deal for families and for small business," he said.
"You can trust me to deliver a stronger economy and a safer community."
TEN TURBULENT MONTHS FOR TONY ABBOTT
December 2014: Abbott reshuffles cabinet, dumping David Johnston as defence minister and shifting Peter Dutton from health to immigration. Scott Morrison gets the social services mega-portfolio. Abbott appoints a new media chief, the ABC's Mark Simkin.
January 2015: New health minister Sussan Ley dumps Medicare co-payment. Backbenchers are relieved. But Abbott then goes and makes Prince Philip a knight, without consulting colleagues, which is described as "ridiculous" and "stupid" by MPs. The LNP loses the Queensland election after one term and Abbott cops part of the blame.
February 2015: Abbott dumps his paid parental leave scheme and steps back from a role in selecting knights and dames, again to the relief of backbenchers. But MPs Warren Entsch and Dennis Jensen say the underlying concern about Abbott must be brought to a head. West Australian Liberals Don Randall and Luke Simpkins call for a spill but it is voted down 61-39 with no contender.
March 2015: NSW state election win gives Abbott some breathing space but highlights what can be achieved with a popular leader prepared to listen. Car industry funds and legal services spending which were due to be cut are retained at least in part.
April 2015: South Australian Liberals say unrest over Abbott is "clobbering" them. Government is kept on its toes with Andrew Chan and Myuran Sukumaran executions and terrorism arrests.
May 2015: Federal budget gets positive headlines for its small business tax breaks and families spending. Budget "emergency" talking point is binned.
June 2015: ABC is taken to task over Q&A allowing Zaky Mallah on the show. Abbott allows ASIO secret maps to be shown on TV when he visits the spy agency's headquarters. China free trade agreement is inked. Reports Australian officials paid people smugglers $US30,000 to turn a boat around.
July 2015: Abbott initially stands by Speaker Bronwyn Bishop over her chartering of a helicopter to attend a Liberal fundraiser. Bishop is cut loose as furore damages government.
August 2015: Furore over Dyson Heydon's acceptance of an invitation to speak at a Liberal fundraiser ends with Heydon rejecting a union bid for his dismissal. A joint Victorian police-Australian Border Force operation in Melbourne is cancelled after outrage over random visa checks.
September 2015: Minister Peter Dutton accuses Fairfax of a "jihad" against the government. Report of a hit list of ministers likely to be axed in reshuffle reignites leadership talk.
September 14: Abbott refuses to acknowledge mounting speculation his leadership is again under threat, dismisses it as "Canberra gossip, Canberra games" and insists his job is to submit himself to the judgment of the people after governing "effectively every day for three years". Ousted as Prime Minister after losing leadership spill to Malcolm Turnbull 54-44.
Additional reporting Audrey Young of the New Zealand Herald