By Colin Packham
CANBERRA (Reuters) - Australian Prime Minister Malcolm Turnbull stubbornly clung to power on Thursday as senior ministers deserted him, saying he would hold a second leadership vote on Friday only if he received a letter signed by a majority of ruling party members.
Former home affairs minister Peter Dutton narrowly lost a challenge against Turnbull on Tuesday and has declared he would again contest a Liberal party leadership vote, while media reported the treasurer and foreign minister will also be candidates if a vote is called.
Key Turnbull supporter Finance Minister Mathias Cormann said Turnbull no longer had majority party support and Dutton was now the best person to lead the government to the next election, due by May 2019.
Several ministers have tendered their resignations. The leadership crisis saw the government adjourn parliament on Thursday until September.
Turnbull said if he received a letter requesting a fresh vote with the signatures of 43 Liberal Party lawmakers, he would call a party meeting for midday Friday (0200 GMT). If a sc-called leadership spill motion was then passed, he would not stand in the vote.
A leadership spill motion is a vote to declare the leadership of a political party vacant, allowing an open contest.
Australian media reported on Thursday that Treasurer Scott Morrison and Foreign Minister Julie Bishop would contest the top job if the spill motion is passed.
Morrison has been a Turnbull supporter, but has reportedly long held ambitions to be prime minister.
Bishop, foreign minister for almost five years, has been deputy leader of the Liberal Party since 2007.
Whoever emerges as the next prime minister will become Australia's sixth in less than a decade. None of them, including two stints for Labor leader Kevin Rudd, have served a full term.
"Australians will be rightly appalled by what they are witnessing in their parliament," Turnbull told reporters in Canberra.
The revolving political door has angered and frustrated voters and the business sector.
The uncertainty has clouded the outlook for investors who punished the Australian dollar
Australian shares (AXJO) are down more than 1.5 percent since the first leadership challenge this week.
"For everybody in the country what is happening in Canberra is disappointing and frustrating. Business likes certainty and confidence in what happens in the future. Anytime we see uncertainty like what is happening in Canberra it is not helpful," said Qantas CEO Alan Joyce.
LIBERAL SPLIT
Turnbull said the leadership crisis was an "internal insurgency" to move the Liberal party to the far right.
"A minority in the party room, supported by others outside the parliament, has sought to bully, intimidate others into making this change of leadership," he said.
"It's been described by many people ... as a form of madness.
Turnbull sought to raise doubts over Dutton's ability to continue sitting in parliament, with reports he has financial interests in daycare centers which receive government funding.
The constitution bans lawmakers benefiting from state funds.
Turnbull said he asked Australia's most senior legal officer to provide advice on Dutton's eligibility.
"I cannot underline too much how important it is that anyone who seeks to be prime minister of Australia is eligible to be a member of parliament," Turnbull said.
Adding pressure on rebel lawmakers, Turnbull said he would resign from parliament if he lost the leadership, threatening the government's one-seat majority.
Turnbull came to power in a party-room coup in September 2015. A social liberal and multi-millionaire former merchant banker, he has struggled to appeal to conservative voters and only narrowly won a general election in 2016.
The ruling Liberal-National coalition government has consistently trailed the opposition Labor party in opinion polls, but Turnbull has remained the voters' preferred prime minister over Labor leader Bill Shorten.
Shorten said the "cannibalistic behavior" over the Liberal leadership was eating the government alive.
"Australia no longer has a functioning government," he told parliament.