Angela Eagle said she is backing Owen Smith in his bid for Labour leadership in order to unite the Labour party.
Owen Smith has received 88 nominations from Labour MPs and two from MEPs in the party's leadership contest, therefore clearing the hurdle of 51 nominations to become a candidate.
We have a Labour party at the moment that is not working. We have got a leader that does not have the confidence of his MPs and is not reaching out to the rest of the country. We need to have a strong and united Labour party so we can be a good opposition, take the fight to the Conservative government and heal our country.
Angela Eagle has withdrawn from the contest for Labour's leadership in order to back Owen Smith as a "unity candidate" to challenge Jeremy Corbyn.
Ms Eagle was the first to mount a public challenge to the Labour leader, but decided to withdraw after it became apparent that Pontypridd MP, Mr Smith, had secured more nominations from party MPs and MEPs.
Mr Smith has obtained nominations from 88 Labour MPs and two MEPs to become a leadership candidate, easily clearing the 51 hurdle to get his name onto the ballot paper.
Among his nominators is former party leader Ed Miliband.
Incumbent leader Mr Corbyn was not required to secure nominations to take part in the contest, following a ruling by the party's National Executive Committee.
Ms Eagle said that while there had been "quite a narrow gap" in support among Labour MPs for her and Mr Smith, she had concluded it was in the best interests of the party that she dropped out.
When I looked at the results I didn't think it was in the interests of the party that this carried on.
Mr Smith will now go forward to fight Mr Corbyn in a ballot of party members and supporters which ends on September 24.
Speaking at Westminster, Ms Eagle said she would be backing Mr Smith in the contest, adding: "We are in lock-step together, arguing for a united Labour Party."
Angela Eagle has withdrawn from the race to oust Labour leader Jeremy Corbyn.
ITV News' Political Editor Robert Peston has the latest:
Labour leadership challenger Owen Smith has said he will withdraw from the contest if Angela Eagle - who has also launched a bid to replace Jeremy Corbyn - secures more support from colleagues.
Mr Smith told ITV News: "I don't think that the person who doesn't command majority support in the PLP (Parliamentary Labour Party) can credibly say they are the unity candidate."
He added: "And I think the most important thing is uniting the Labour Party, we're in danger of splitting...that's why I'm standing in this contest."
The challengers to Jeremy Corbyn's leadership, Owen Smith and Angela Eagle, will face a parliamentary Labour Party hustings event later, where they will set out their stall to fellow MPs.
Pontypridd MP, Mr Smith, said he would happily bow out if Ms Eagle had more support from MPs to give her the best shot of toppling Mr Corbyn.
Mr Smith said the leadership contender with the most support among Labour MPs should become the unity candidate to take on Mr Corbyn, a view shared by senior colleagues.
But Ms Eagle refused to give the same assurance, instead insisting that she was in the best position to beat Mr Corbyn to become leader in a national ballot of members.
Labour leadership contender, and Pontypridd MP, Owen Smith has promised to rewrite Clause IV of the party's constitution to put tackling inequality at the heart of its mission.
Launching his bid to replace Jeremy Corbyn, Mr Smith evoked Tony Blair's "Clause IV moment" - when the former prime minister controversially amended the passage to remove its historic commitment to mass nationalisation.
The former shadow work and pensions secretary also backed Mr Corbyn's call for a war powers act to give MPs in Parliament a legal veto over any decision to go to war.
Plaid Cymru has responded to the launch of Owen Smith's Labour leadership campaign, describing the Welsh MP as ‘fork-tongued’.
While the so-called official opposition continues to tear itself apart with their public campaign against itself, it is fitting that the latest person to try to oust their leader is Owen Smith - the one man they can rely on to put party before country.
An expert in judging his audience - a former CND member one day, and a man who is prepared to “annihilate millions of people” with a nuclear weapon the next. A man who believes austerity is a “completely self-defeating economic strategy” on one day, and a man who votes in favour of the Tories’ £30 billion austerity package the next. One nation Labour really has two faces.
Having consistently voted against empowering the people of Wales and the Welsh Parliament however, the people of Wales can at least know for sure that fork-tongued Owen Smith will always vote against the Welsh national interest.
Aberavon MP Stephen Kinnock has said he believes Labour leader Jeremy Corbyn should resign in the wake of the Brexit vote.
It comes after Mr Corbyn sacked Hilary Benn as shadow foreign secretary after reports he was co-ordinating a movement to unseat the party leader.
Jeremy Corbyn said has no intention of stepping down as leader of the Labour party, a spokesman said today.
Mr Kinnock told Sky News' Dermot Murnaghan that the party needs a 'hard-headed negotiator'.
I think that what we need now is a hard-headed negotiator. Jeremy is a man of enormous integrity and decency and he has been very effective as a campaigner on issues that he has got a real interest in campaigning on for many, many years.
The job description has changed, these Brexit negotiations are going to dominate British politics for the next three, five, ten years and we need a Leader of the Opposition who really understands that in terms of how the EU is going to work and also ensuring that we’ve got a co-ordinated approach
He added that the job to lead the opposition party following the EU referendum has 'changed completely'.
"These are extraordinary times, unique and unprecedented and the leader of the Labour party has to reflect that".
Mr Kinnock also added he did not consider himself as a candidate for the role.
There are lots of very, very talented people in very senior positions. I’ve only been an MP for one year, the key thing now is to look at what the candidates have got to say, set their stall out and what I think is very important is that they frame that in the context of Brexit."
The new Shadow Welsh Secretary says the party can turn enthusiasm generated by the election of its new leader into votes in next May's Welsh Election. Nia Griffith was addressing Welsh delegates at the start of Labour's conference in Brighton. She told our Political Editor Adrian Masters why Jeremy Corbyn's election is good news for Labour in Wales.