Morrissey's decision risks dividing an already demoralised party but the Dublin North politician argues that a contest would lift party morale.

"I want a contest to allow the membership to be rejuvenated and to have a say in who is their next leader, " he said.

Until now, it had been widely expected that former junior minister Tom Parlon would be the only nominee to fill the vacancy created by the resignation of Michael McDowell last month, after the party's poor election performance.

Neither health minister Mary Harney, who is acting leader, nor Noel Grealish, the party's only other TD, wants the job.

In coming weeks, the PDs will decide the format for a leadership contest, as many of the party's current rules have been made unworkable by the general election when six Dail seats were lost. A five-member commission is due to report to the party's national executive in September after which a leadership election is now expected to take place.

The new election rules are likely to maintain the present situation in which the party leader is chosen by a combination of party members and public representatives.

Morrissey's decision to declare as a leadership candidate will have a significant bearing on the Taoiseach's two nominees to Seanad Eireann to be filled by the PDs.

Bertie Ahern is expected to announce his nominations at the end of August.

Tom Parlon and Fiona O'Malley, who both lost their seats, had been named as the likely PDs nominees. However, it is understood that Harney told last week's meeting of the PD national executive that, as acting leader, she was not happy to decide who should be nominated.

Sources close to Morrissey argue that if he were elected leader, he should be one of the party's new senators. With a leadership contest now a real possibility, the PDs may hold off filling the two Seanad positions until after the leadership issue has been resolved, leaving open the scenario that Ahern will announce only nine of his 11 nominees in August.