Iraq's president has asked the deputy speaker of parliament, Haider al-Abadi, to form a new government.
Mr Abadi had previously been nominated prime minister by Shia parties, instead of the incumbent Nouri Maliki.
But Mr Maliki's allies rejected Mr Abadi's nomination, saying he had no legitimacy. Mr Maliki has made it clear he wants to stand for a third term.
Meanwhile the jihadist insurgency in the north of Iraq continues to cause international concern.
Fighters from the Islamic State (IS) group have made substantial gains in northern Iraq in recent months, forcing tens of thousands of people from religious minorities to flee their homes.
The US has begun supplying weapons to the Kurdish Peshmergas who are fighting the militants, senior US officials have told the Associated Press.
Iraq's security forces are also supporting the Kurdish fighters, and have already delivered three plane-loads of ammunition, a US official told the BBC.
Maliki snubbed In Baghdad, Iraqi President Fuad Masum said in a TV address that he hoped Mr Abadi would succeed in forming a government that would "protect the Iraqi people".
"The country is now in your hands," Mr Masum told Mr Abadi, according to the French news agency AFP.
Analysts say the announcement is a public snub for Mr Maliki, whose State of Law coalition won the most seats in April's elections.
Now he has lost support from some of his own Shias - with the Shia National Alliance reported to have given Mr Abadi 130 votes, compared with just 40 votes for Mr Maliki.
Zuhair al-Naher, from the Dawa party to which both Mr Abadi and Mr Maliki belong, told the BBC that Mr Abadi was "much more pragmatic" than Mr Maliki, and had excellent relations with all political divides.
But another Dawa party member, Khalaf Abdul-Samad, read a statement on state TV saying that Mr Haider "only represents himself", as Mr Maliki and other supporters stood beside him.
Mr Maliki has been prime minister since 2006, but even though his coalition won the elections in April, parliament has still not agreed to give him a third term. He has also lost the backing of the US.
Mr Maliki's popularity has suffered from the growing Islamist insurgency in the north - and even before that his support from Sunnis and Kurds was dwindling.
The White House said Vice-President Joe Biden called President Masum to discuss the nomination of Mr Abadi, and promised US support for the formation of a new government.
Mr Abadi's nomination was welcomed outside Iraq. The presidents of France and Turkey called for him to form a government of national unity, while the UN urged Iraqi militias to keep out of politics.
Source: BBC
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