The election is taking place amid continued protests and blockade of a key border trade point with India over the country's new Constitution.
Koirala today submitted his resignation to President Ram Baran Yadav who accepted it, setting the stage for a vote to elect the new Prime Minister tomorrow.
Koirala has filed his candidacy for the Prime Ministership from his Nepali Congress (NC) party. His name was proposed by former Prime Minister and senior NC leader Sher Bahadur Deuba
Oli is seen as the frontrunner to become Prime Minister as more than a dozen parties including Prachanda's UCPN-Maoist have extended support to him.
Both Koirala and Oli have filed their nomination papers.
After filing his nomination papers, Koirala said 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.
The election of the prime minister comes even as the new Constitution, which was unveiled on September 20 after seven years of negotiations, is being opposed by Madhesi groups.
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.
Madhesis are Indian-origin inhabitants of the Terai region bordering India who are opposed to splitting Nepal into seven provinces.
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.
