Koirala submitted his resignation to President Ram Baran Yadav who accepted it and asked him to conduct daily administrative functions till a new government is formed.
As Parliament is all set to vote to elect the new premier tomorrow, Koirala's resignation is just a formality as he himself is in the race to become prime minister again.
Koirala has filed his candidacy for the premiership from his Nepali Congress (NC) party. He is running against CPN-UML Chairman K P Sharma Oli.
Oli's name was proposed by Unified CPN-Maoist chairman Prachanda and seconded by Rastirya Prajatantra Party chairman Kamal Thapa.
Oli is seen as the frontrunner to become prime minister with a majority as more than a dozen parties including Prachanda's UCPN-Maoist have extended support to him.
After filing his nomination papers, Koirala said that he had decided to contest the election on his party's directive.
He said he would pursue the politics of cooperation and collaboration whether he wins or loses the election.
Yesterday, Nepal formed a three-member team headed by the Foreign Minister to ease a diplomatic standoff with India over the supply of essential goods, including petroleum products, which has been hit due to blockade of trade points with India by Madhesi people protesting against the new Constitution.
The agitating Madhesi Front claims that the Constitution does not guarantee enough rights and representation to the Madhesi and Tharu communities residing in southern Nepal.
They are against splitting Nepal into seven provinces. The continued blockade of border trade points with India has halted the supply of essential goods from India.
At least 40 people have died in over a month of clashes between police and protesters from the Madhesi and Tharu communities and ethnic minorities.
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