Prime Minister Zafarullah Khan Jamali, who resigned on Saturday in the wake of a growing rift with President Gen Pervez Musharraf, proposed the name of Chaudhary Shujat Hussain as his successor.
Announcing his decision at a meeting of his parliamentary party and allies, Jamali said he has dissolved his cabinet and was quitting with the hope that a better person would succeed him.
He handed over his resignation to Hussain who is the chief of the Pakistan Muslim League (Quaid-e-Azam), which heads the ruling coalition.
"If my decision strengthens the party I will be happy," he said adding that he would not take any post but work for the party as an ordinary member.
Jamali said he had served the party with zeal but apparently could not come up to expectations. He said his resignation would put to rest month-long speculation, apparently referring to his strained relationship with Gen Musharraf.
Leaders of the Muthahida Quami Movement (MQM), one of the important constituents of the ruling alliance, said President Musharraf had chosen Hussain to succeed Jamali and would be backed by the PML-Q and its allies, local TV channels reported.
In November 2002, Hussain had nominated Jamali as prime minister as per Musharraf's wishes after the general elections but was active as a back room operator.
Musharraf, who has accepted Jamali's resignation, has asked him to remain in office until a replacement is appointed, senator Mohammad Ali Durrani of the ruling alliance said.