Abdullah al-Thani’s cabinet said it was resigning to enable the elected parliament to choose a new, inclusive government.
The Islamist-linked militia which seized the capital, Tripoli, last week has called for the elected parliament to be replaced by the previous body, the General National Congress (GNC).
Libya has been hit by instability since the 2011 ousting of Colonel Muammar Gaddafi.
The various armed groups which united against Libya’s long-time leader have refused to disarm, leaving the government unable to exert control.
French President Francois Hollande on Thursday called for the UN to give “exceptional support” to Libya to prevent the country sliding further into chaos.
Following the call by the Misrata-led militia for the GNC to reform, some members gathered this week in Tripoli and said they had appointed a new prime minister.
The UN this week stressed that it only recognized the elected body, the House of Representatives, which is dominated by liberal and federalist lawmakers.
The GNC had an Islamist majority.
Because of the instability in Tripoli, and the second city Benghazi, the House of Representatives has been meeting in the far eastern town of Tobruk.
Abdullah al-Thani, 60, served as Libya’s prime minister since March 2014, when he took over in an interim capacity after Congress dismissed Ali Zeidan. He was previously the defense minister in the government of Ali Zeidan.
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