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Ex-shadow cabinet minister Owen Smith has said he will stand against Jeremy Corbyn, saying Labour needs both a "radical and credible" leader.
The Pontypridd MP, who quit as shadow work and pensions secretary last month, said he could "heal" the party and "turn the page" on its internal strife.
Elements on the left and right of the party wanted to split it, he claimed.
On Tuesday, Labour ruled Mr Corbyn should automatically be in the contest, in which Angela Eagle is also standing.
Mr Smith will need the support of 51 MPs or MEPs to be eligible to stand in the contest.
The party will announce the election timetable on Thursday but the contest is expected to take two months, with the winner expected to be announced on the eve of the Labour Party conference on 24 September.
Mr Smith said he supported the decision to allow Mr Corbyn on to the ballot and rejected claims that by standing he would split the anti-Corbyn vote in the contest, telling the BBC that members of the party wanted a "wide choice" of candidates to choose from.
He told BBC Radio 4's Today that he supported many of Mr Corbyn's policies, including his anti-austerity agenda, but had lost "faith and confidence" in Mr Corbyn's ability to lead the party effectively, with the prospect of government seeming "so distant".
Who can vote in Labour leadership contest?
Labour Party members, affiliated trade union supporters and so-called registered supporters are able to vote although there are some key differences from the 2015 contest, which Jeremy Corbyn won.
Labour Party members need to have signed up on or before 12 January to be eligible to vote. Nearly 130,000 people have become members alone since the EU referendum. As it stands, they won't automatically be able to take part
Anyone can become registered supporters - giving them a one-off vote - if they pay £25 and "share" Labour's aims and values. There is a two-day window for people to sign up, expected to be between 18 and 20 July although this has not been confirmed.
Registered supporters who paid £3 to vote in last year's leadership election will have to reapply
Affiliated supporters can sign up for less then £25, with rates depending on the organisation they belong to. But they have to be a member of a trade union or a socialist society.
He denied he had been part of a plot against Mr Corbyn in recent weeks but he went on to attack allies of the Labour leader, including shadow chancellor John McDonnell, suggesting that they "were part of the problem".
"Jeremy Corbyn has been right about a lot of things but he is not a leader who can lead us into an election and win for Labour," he said.
"Working people cannot afford to have a day like this where the Tories are popping the champagne corks and celebrating their coronation and the prospect of a Labour government feels so distant for working people. We can't afford that in Labour. We need to turn the page."
Expressing confidence he could win the leadership fight by appealing to both wings of the party, Mr Smith added. "I can heal the party and be a credible leader and next Labour prime minister."
Mr Smith said he would have voted against the Iraq War had he been an MP at the time, differentiating himself from Ms Eagle who voted for the war. But he said he would vote to support the renewal of the UK's Trident nuclear weapons system in a Commons vote Monday, putting him at odds with Mr Corbyn.
On Tuesday, Labour's National Executive Committee ruled Mr Corbyn should automatically be included in the contest - a decision Mr Smith supports. Opponents of Mr Corbyn argued he needed the support of 51 MPs or MEPs to stand.
However, the NEC voted 18-14 in favour of the Labour leader's inclusion on the ballot, following hours of talks.
Iain Watson, BBC political correspondent
Owen Smith had been mulling over a leadership challenge, but initially he put his efforts into trying to persuade Jeremy Corbyn to move to a different role because, in Mr Smith's view, he quite simply wasn't seen as a potential prime minister.
When it was clear the current leader was digging in, the former shadow work and pensions secretary canvassed support for a challenge.
Angela Eagle was first out of the traps and has argued that it is time that Labour - a party of equality - elected its first female leader.
Mr Smith will position himself to Angela Eagle's left, stressing support for Mr Corbyn's anti-austerity policies, and believes this enables him to appeal to an apparently radical membership.
But if the anti-Corbyn forces are split, that will boost the prospects of a leader whom both Mr Smith and Ms Eagle regard as unelectable.
So it remains to be seen if they can reconcile any differences and agree on a single challenger.
Mr Smith has met Mr Corbyn several times in the past two weeks but failed to convince him to step aside and avoid a potentially bruising leadership contest, while separate union-led peace talks last weekend.
Mr Corbyn was elected leader in a vote of grassroots members last year, but has been hit by a host of shadow cabinet resignations and a vote of no confidence among Labour MPs.
The Labour Party said the timetable for the contest will be published on Thursday.
Speaking on the BBC's Newsnight on Tuesday, Ms Eagle urged Labour voters to sign up to become registered Labour supporters - a one-off status that gives them a vote, if they pay £25 - during a two-day window next week.
She said: "I would say to the nine million Labour voters out there, there's two days next week when you can actually pay £25, help save the Labour Party, make our democracy work, and help me heal our country."
She added: "Join us in this battle, let us win the Labour Party back."
Ms Eagle said Labour had been created to "be the voice of working people in Parliament" and to do that "you have to be effective in Parliament". She said she had "tried" to work with Mr Corbyn for nine months, but added that he "cannot lead in Parliament".
Mr Corbyn comfortably won the leadership election last year, with 59% of the votes in the first round. More than 422,000 people voted in the contest, 58% of them full members, 17% trade union affiliated supporters and 25% registered supporters.
Profile: Owen Smith
Began his career as a BBC journalist, where he worked for 10 years as a radio and television producer, including on BBC Radio 4's Today programme
Worked for five years in the biotechnology and pharmaceuticals industry and went on to become a special adviser in Parliament
Elected as the Labour MP for Pontypridd in 2010, succeeding former Labour minister Kim Howells, after he stood down
Served as shadow Welsh secretary under Ed Miliband and then as shadow secretary of state for work and pensions under Jeremy Corbyn, until resigning in June