Lawmakers in the governing Conservative Party began voting for a new prime minister on Tuesday as the Brexit vote sent more shockwaves through Britain's economy and European leaders warned tough negotiations lay ahead.
Interior minister Theresa May is styled as clear frontrunner in the race to succeed David Cameron, who announced he would quit after the shock result of the June 23 referendum.
She is pitching herself as a sober operator, capable of unifying a party fractured by the Brexit crisis and of leading Britain out of the EU.
She has called for a delay in invoking Article 50 -- the formal procedure for leaving the EU -- and has said she wants access to Europe's single market as well as restrictions on free movement of people.
But EU leaders have ruled this out, saying access to the single market would mean allowing free movement.
They are also urging Britain to hurry up on its exit negotiations as they try to contain the fallout from the vote.
The Brexit vote has sparked a fierce debate on whether the EU should close ranks and press for more union or opt for a looser grouping. Hungary's eurosceptic government on Tuesday announced a referendum on a troubled EU migrant quota plan.
Britons on June 23 voted by 52 percent in favour of leaving the bloc, the first member ever to do so.
The result has put the "European project" in question and threatens the United Kingdom's own unity since pro-EU Scotland is now raising the prospect of independence.
Britain's new leader will also have to ease widening fears over Brexit's economic fallout, which has led to two large property funds suspending trading this week following a surge in sell-offs.
The pound fell to new lows against the dollar and the Bank of England moved to boost bank lending, warning that risks to stability "have begun to crystallise".
"There is the prospect of a material slowing in the economy," Bank of England governor Mark Carney said.
Aviva Investors suspended its £1.8-billion (2.1-billion euro, $2.4-billion) commercial property fund, a day after Standard Chartered did the same with its £2.7 billion UK Real Estate fund.
"Dominoes are starting to fall" in Britain's commercial property market, said Laith Khalaf, senior analyst at investment company Hargreaves Lansdown.
Britain's first government bond launch since the vote also returned a record-low yield of 0.382 percent as investors bought up bonds in a rush for safer assets.
May campaigned for Britain to stay in the EU but now says that "Brexit means Brexit" and has ruled out an early election or a second referendum -- both seen as possible ways of rowing back from the result.
One of her rivals, Andrea Leadsom, who campaigned for Britain to leave, has said she wants exit negotiations to be "as short as possible" in order to avoid "prolonged uncertainty".
The ruling party's 330 MPs will vote for one of five candidates, with the least popular being eliminated ahead of similar votes on Thursday and next Tuesday to reduce the shortlist to two.
The party's 150,000 members will then decide the winner, with the result to be declared on September 9.
The race took a dramatic turn last week when justice minister Michael Gove announced his candidacy, delivering a stinging attack on pro-Leave ally Boris Johnson moments before he was expected to announce his own bid.
A wounded Johnson pulled out of the contest but the affair appears to have turned some MPs against Gove.
Leadsom received Johnson's backing on Monday.
"Andrea Leadsom offers the zap, the drive, and the determination essential for the next leader of this country," said the former London mayor.
"She possesses the qualities needed to bring together leavers and remainers in the weeks and months ahead."
The vote has shaken Britain's political order, plunging both the Conservatives and opposition Labour party into chaos.
Leading Brexit campaigner, MEP Nigel Farage, resigned as head of the UK Independence Party on Monday, saying his "political ambition has been achieved".
"The Brexit heroes of yesterday are now the sad heroes of today," European Commission president Jean-Claude Juncker told the European Parliament.
"Those who have contributed to the situation in the UK have resigned, Johnson, Farage and others. They are as it were retro-nationalists, they are not patriots," he said.
"Patriots don't resign when things get difficult, they stay."
In the Labour Party, leader Jeremy Corbyn is still clinging to his job, despite being defeated in a non-binding no-confidence vote of Labour lawmakers angry at his lacklustre campaigning to stay in the EU.
Corbyn argues that support from grassroot members, who delivered him a landslide victory in last year's leadership election, gives him a mandate to lead.
But 80 percent of the party's MPs voted against him.
The release of a long-awaited report into Britain's involvement in the 2003 Iraq invasion on Wednesday is likely to pour oil on the fire, pitching pacifist Corbyn against MPs who supported then prime minister Tony Blair's decision to join the US-led war.
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