By Rob Taylor 

Papua New Guinea's veteran Prime Minister Peter O'Neill has resigned following weeks of political turmoil and government defections over his handling of various budget and health crises, including a $13 billion plan to double liquefied natural gas exports.

Mr. O'Neill, who has led the resource-rich but tumultuous Pacific nation for seven years, said Sunday that he was stepping down, ahead of a vote of no confidence that his weakened People's National Congress Party was expected to lose this week as political opponents moved against him in the Parliament.

"It has not been easy," Mr. O'Neill told reporters. "We have heard the calls and we have agreed for a change of government."

Papua New Guinea has faced numerous challenges in recent years, including a shortage of foreign currency and a sharp slowdown in growth, as well a polio outbreak and an earthquake in 2018. To bridge the revenue gap and revive its slowing economy, Mr. O'Neill's government has increasingly turned to China for low-cost loans to fund infrastructure and other construction projects.

The upheaval occurred as a top U.S. State Department official, Principal Deputy Assistant Secretary for East Asian and Pacific Affairs W Patrick Murphy, arrived in Port Moresby for talks after warning that China was destabilizing the Pacific by trying to poach Taiwan's remaining allies in the region.

While Mr. O'Neill, 54, is a wily political strategist who has survived several previous attempts to topple his leadership, he has come under intense pressure in recent weeks over a multibillion-dollar gas project signed in April with French oil major Total and the U.S. petroleum giant Exxon Mobil.

Although the deal was aimed at doubling Papua New Guinea's LNG exports to help meet surging global demand, local communities in the country's highlands had questioned projected revenues and employment guarantees after the benefits of a previous Exxon-led project failed to meet expectations, crimped by a downturn in gas prices that allowed Exxon and partners to claim losses against royalty payments.

Mr. O'Neill's influential Finance Minister James Marape defected to political opponents in April after the deal was signed and was followed by several members of parliament. Another nine defections on Friday decisively tipped numbers in the parliament in favor of opponents.

Mr. O'Neill said he was handing office to Sir Julius Chan, a political veteran who would, he said, provide "a certain amount of stability" for the country in coming days. Mr. Chan has been prime minister twice previously and was minister of finance in Papua New Guinea's first independent government during the 1970s.

Mr. Chan paid tribute to Mr. O'Neill's handing of the country through downturn and said his first priority would be to oversee a smooth political transition to ensure no outbreak of violence in the South Pacific nation of 7.3 million people.

"Men and women of Papua New Guinea. We have very short memories," he said. Tomorrow you will look back and see all the things that he has done. But like life itself, you have just got to move on."

Write to Rob Taylor at rob.taylor@wsj.com

(END) Dow Jones Newswires

May 26, 2019 05:09 ET (09:09 GMT)