Iraq plunged deeper into political crisis late on Monday, as embattled Prime Minister Nouri al-Maliki refused to step aside to allow his successor, Haida al-Abadi, to form a new government.
On Monday, the current prime minister was told by Iraqi President Fouad Masoum that he was to be replaced by al-Abadi, but in a TV address on Monday night Maliki defied pressure from Shiite political figures and the US government and refused to relinquish his post.
Maliki described Abadi's nomination as "legally worthless" and demanded he was allowed to serve a third term, after his party won the majority of votes in the April elections.
"You, the Iraqi people, and the security forces are in a holy battle," Maliki said during his state TV address on Monday night. "Don't panic. We will fix the mistakes."
"We are the largest bloc in the parliament and have the right to form the government," continued the soon-to-be former prime minister.
On Monday, US Secretary of State John Kerry insisted his government was fully behind President Masoum's decision to appoint Abadi and urged Maliki to accept it was time for him to step aside, as Iraq seeks to solve the political impasse that's crippled the country for the last three months.
"We are prepared to consider additional political, economic and security options as Iraq starts to build a new government," Kerry said in a speech in Sydney on Monday.
The political stalemate that has gripped Iraq since April has helped the militant Sunni fighters of the Islamic State (IS) seize parts of the country and Washington fears that were the current situation to protract, it could lead to further instability.
"Maliki has consolidated control over the security apparatus by establishing extra-constitutional security bodies and creating a direct chain of command from commanders to his office," Meda Al Rowas, senior Middle East analyst at IHS Country Risk, said in a note on Tuesday.
"This increases the risk of Maliki's rivals, who have access to their own militias, using force to attempt to remove Maliki, raising the risk of Shia-Shia infighting within the capital, and subsequently civil war risks affecting southern provinces."
President Barack Obama renewed calls for Iraqi leaders to work diplomatically to ease the political tensions that have plunged the country into crisis.
"I urge all Iraqi political leaders to work peacefully through the political process in the days ahead," Obama said on Monday.
The US airstrikes in Northern Iraq managed to momentarily halt IS militants' advance, as Kurdish forces regained control of towns in the north of the country, but US Lieutenant General William Mayville warned the airstrikes were only having a "temporary effect".
"We've had a very temporary effect, and we may have blunted some tactical decisions by Islamic State militants to move farther east toward Erbil, the Kurdish regional capital," Mayville said.
The Pentagon said there are currently no plans to expand air operations beyond the mission of protecting civilians and US personnel and Obama insisted the only solution for Iraq was to form a broader government to ease ethnic divisions.
"As I said when I authorized these operations, there is no American military solution to the larger crisis in Iraq," the US president said. "The only lasting solution is for Iraqis to come together and form an inclusive government."
News that US airstrikes had halted IS militants' progress was well received by the markets, with the dollar
looking increasingly strong and gaining ground against the euro.