Papua New Guinea's embattled prime minister stepped down on Wednesday, capping a months-long political crisis and calling a multibillion dollar French and US-backed gas deal into question. 

Facing a string of cabinet resignations and a vote of no confidence he looked sure to lose, veteran leader Peter O'Neill told parliament he had handed his letter of resignation to the country's governor general.

"I hereby tender my resignation as Prime Minister of the independent state of Papua New Guinea, effective immediately," read the letter that was obtained by AFP.

O'Neill said he had decided to step down "in the interests of ongoing political stability in our country," citing the need for "economic confidence and social unity." 

For eight years O'Neill had led the rugged and ethnically diverse nation, which is home to over 800 languages. 

But he had been heavily criticized for endemic corruption and chronic underdevelopment in the country.

The government's purchase last year of 40 Maseratis to ferry foreign dignitaries around Port Moresby's few fully-paved roads during an APEC summit became emblematic of his tenure.

But the breaking point appeared to have been a recent $13 billion deal with Total and ExxonMobil to extract, pipe and ship liquefied natural gas overseas.