Her departure as the member for Farrer will trigger a by-election in the regional NSW seat, which is expected to be a hotly contested four-way race.
Conservative MP Angus Taylor defeated Ms Ley to become the next Liberal leader in a party room vote earlier in February.
In a statement announcing her resignation, Ms Ley said it was crucial the Liberals held on to Farrer, saying it had been held by the coalition without fail since its creation in 1949.
"The election of a Liberal Member in the Farrer by-election is vital for the betterment and ongoing strength of our region and I know that Angus Taylor can and will ensure the party continues to enjoy the support, trust and confidence of the people of Farrer," Ms Ley said.
Among coalition ranks, the vote is viewed as the first major test of Mr Taylor's leadership.
Mr Taylor said Ms Ley had made a massive contribution to the Liberals and the nation over her 25 years in parliament, and warned the by-election would be hard to win.
"The Farrer by-election is going to be very, very tough," he told reporters in Sydney on Friday.
"I came into this role with the Liberal party in the worst circumstances it's faced since 1944," Mr Taylor said.
In her statement, Ms Ley said she was proud of her work establishing a federal royal commission into anti-Semitism and setting clear policy directions on tax, industrial relations, energy, national security and families.
She pointedly praised Mr Taylor's "immediate re-adoption" of many of her policies.
Now Ms Ley has resigned, Speaker of the House Milton Dick will issue the writs for a by-election, officially setting a date for Farrer residents to go to the polls.
The Liberals, Nationals, One Nation and independent Michelle Milthorpe are all expected to run.
Fellow independents David Pocock and Helen Haines will publicly endorse Ms Milthorpe on Friday, effectively kicking off the campaign for Farrer even though a by-election date is yet to be set.
Ms Milthorpe has previously been in the public eye as an advocate for victims of child sexual assault, after her two daughters were abused by a family friend.
She ran against Ms Ley in the 2025 federal election, losing 56.2 to 43.8 per cent after preferences.
After being deposed as opposition leader, Ms Ley said she would spend the following weeks thanking her constituents before tendering her resignation.
But one senior Liberal source said Ms Ley had not been heard from since the day of the leadership spill and had not reached out to any of the local party membership.
Ms Ley's office did not respond to a request for comment.
The Liberals, Nationals and One Nation are all yet to announce candidates for the upcoming vote.
State Liberal MP for Albury Justin Clancy had been considering a run but ruled himself out on Friday morning, citing family commitments.
Party insiders feared losing Farrer and the state seat of Albury if Mr Clancy wasn't successful in the by-election.
One Nation plans to reveal its final three or four nominations next week, with a pre-selection event scheduled for March 7 to choose its official candidate.
Helen Dalton, an independent NSW MP whose electorate of Murray overlaps with Farrer, has left the door open to running for the anti-immigration party.
Local Nationals party members will also vote on their candidate in the coming weeks.
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