Conservative Party leader David Cameron became Britain's new prime minister tonight after he accepted the invitation from Queen Elizabeth to form a new government.
Mr Cameron (43) whose party won the most seats and votes in last Thursday's election but failed to secure an outright majority, takes over from Gordon Brown who earlier resigned, ending 13 years of Labour rule.
Mr Cameron, a former public relations executive, becomes Britain's youngest prime minister in almost 200 years.
On his way into Downing Street tonight, Mr Cameron said he aimed to form a full coalition government between his party and the Liberal Democratic party.
"I aim to form a proper and full coalition between the Conservatives and the Liberal Democrats," he told reporters.
"I believe that it the right way to provide this country with the strong, the stable, the good and decent government we need so badly."
Mr Cameron has made major concessions to the Liberal Democrats to secure a coalition deal.
The final text of the agreement was put both to Conservative backbenchers in the House of Commons and to Liberal Democrat MPs at their party headquarters tonight.
Mr Cameron plans to appoint George Osborne as the next chancellor of the exchequer, while the Liberal Democrats leader Nick Clegg is to become deputy prime minister.
Under the agreement, the Conservative leader has conceded a referendum on limited electoral reform and abandoned plans both to cut inheritance tax and to offer tax benefits to married couples, while he has agreed that tax reforms should first be directed towards getting those earning less than £10,000-a-year out of the tax net, as the Liberal Democrats had wanted.
The Liberal Democrats have accepted that billions worth of spending cuts must happen this year, and put aside their desire to reduce the power of the United Kingdom’s nuclear deterrent, and demands for an amnesty for illegal immigrants.
Earlier an emotional Mr Brown spoke outside his Downing Street office, saying: "I have informed the queen's private secretary that it's my intention to tender my resignation to the queen."
"In the event that the queen accepts I shall advise her to invite the leader of the opposition to seek to form a government. I wish the next prime minister well as he makes the important choices for the future," Mr Brown said.
Mr Brown also said he would be stepping down immediately as Labour leader.
Both the Conservatives and Labour tried to win Lib Dem support to form the next government during five days of intense negotiations, but it became clear this afternoon that Labour had lost and Mr Brown would have to resign.
Sterling held gains against the dollar after Mr Brown announced his resignation, rising 0.8 per cent to $1.4972. British government bonds had also rallied earlier on reports that a Conservative/Lib Dem deal was imminent.
Markets wanted a quick resolution to the uncertainty and favour a Conservative-led government because they believe it would move faster and harder to cut the deficit.
Just after his statement, Mr Brown, his wife and their two children briefly posed for photographers before leaving Downing Street, the official prime ministerial residence.
Then Mr Brown was driven to Buckingham Palace where Queen Elizabeth accepted his resignation.
The sequence of events was in accordance with British constitutional convention. Mr Brown's statement made clear that the Conservatives and the Liberal Democrats had secured some sort of power-sharing arrangement, but the exact details were not yet known.