After nine years in office, Estonian PM Andrus Ansip has announced his resignation to enable a successor to lead his party into 2015 elections.
Mr Ansip, who at 57 is the longest-serving prime minister in the European Union, is likely to be replaced by European Commissioner Siim Kallas.
He implemented harsh austerity measures as Estonia entered recession after the global financial crisis in 2008.
Mr Ansip also brought Estonia into the eurozone in 2011.
Estonia has been widely praised for introducing a the tough measures from 2008-2009 and the economy bounced back in 2011, climbing 9.6%.
But the recovery has faltered in recent months with growth expectations little above 2% this year and Mr Ansip's popularity has also dipped.
A trained chemist and former Communist Party official in the years before the break-up of the Soviet Union, Mr Ansip became mayor of Estonia's second city Tartu before joining the government.
His Reform party which leads the centre-right coalition has been caught up in a party funding scandal. Opinions polls put the party's support at its lowest level since he came to office.
Under Estonian law, the prime minister's resignation brings an end to the government. President Toomas Hendrik Ilves now has 14 days to come up with a candidate to replace him.
Mr Ansip has himself expressed interest in working in Brussels, while Mr Kallas who is currently vice-president of the European Commission is hoping to return to Tallinn as prime minister. Mr Kallas has already served as prime minister.
Estonia was once described by a critic as a "poster child for austerity defenders".
When it was hit by the global financial crisis, Mr Ansip's government reacted by slashing public sector wages and government spending. Ministers also saw a big cut in salaries. A 21% flat rate of income tax also came into force.
The economy contracted by a fifth but quickly recovered.