Defense Minister Ehud Barak announced Monday that he is stepping down as Labor Party chairman to set up a new party, following months of turmoil within the weakened faction.

In the wake of waning support from his own ministers, Barak is forming a new faction called Atzmaut (Independence). He will be joined by four fellow Labor lawmakers - Deputy Defense Minister Matan Vilnai, and members of Knesset Shalom Simhon, Einat Wilf and Ori Noked.

"We set out today toward independence," the 68-year-old Barak said in his official announcement at the Knesset. "We are creating a faction, a movement and eventually a party that will be centrist, Zionist and democratic."

"The top priority [of this movement] will be first and foremost the state, then the party, and only at the end, us," Barak told reporters. "We invite anyone who believes in this path to join."

"The State of Israel is faced with tests that are not simple" with regard to policy, defense and society, Barak said, declaring: "We are ready to confront these."

"We are leaving a party and a home that we love, and respect its members," Barak added. "Many of those members experienced with us the daily difficulties of the party, and they fell victim to the endless fighting within it."

"We have reached the decision that this anomaly in political life, where they were in essence two Labor factions, had to stop," he said.

In a letter to Labor members prior to the formal announcement, Barak's deputy Vilnai wrote: "The Labor faction in Knesset has become an intolerable place, in which it was impossible to conduct a parliamentary life."

"At every meeting, you never knew who was with you and who was ready to quit and join a different party," Vilnai wrote. "In order to advance our own ideas, we have decided to separate and go on a new path. The most difficult party is leaving those friends with whom we have been connected for so many years and who believe, like me, that we are a centrist and Zionist party."

Later, while sitting alongside Barak at the press conference, Vilnai declared: "We simply had no choice."

The decision throws Prime Minister Benjamin Netanyahu's coalition into turmoil, though the number of breakaways is not enough to rob him of his parliamentary majority.

Barak and the four other members of his new party are expected to remain in Netanyahu's coalition. It is not clear whether Labor's eight remaining lawmakers will support the government, in particular in light of recent threats to quit the coalition over the stalled Middle East peace process.

With peace talks in limbo for more than three months, an increasing number of Labor members had urged Barak to pull out of the government because of the impasse.Labor MK Daniel Ben-Simon quit the party last week to protest Barak's decision to remain in the government.

Monday's move by Barak is expected to bring to an end the months of internal strife that hindered Labor's political strength and sway in the government. In a separate statement, Vilnai said that leaving Labor would enable the new faction members to pursue peace "without a stopwatch".

Netanyahu lashed out at the Labor ministers at Sunday's cabinet meeting, saying that the Palestinians were refusing to return to negotiations with Israel because of the party's threats to leave the coalition.

The premier also said the Palestinians were hardening their positions because of certain remarks by Labor party ministers.

Splits within parties and the formation of new factions are not uncommon in Israeli politics. In 2005, then-prime minister Ariel Sharon announced that he was leaving Likud to set up Kadima along with members of his own party and some lawmakers from Labor. The party is today is headed by opposition leader Tzipi Livni, and forms the largest single faction in the Knesset.

Barak, once seen as the heir to slain prime minister Yitzhak Rabin, entered politics in 1995, months after ending an illustrious 35-year military career, which culminated in him serving as head of the Israel Defense Forces.

He became prime minister in 1999, bringing Netanyahu's first term as premier to an end. Barak himself was beaten in a 2001 prime ministerial election by Ariel Sharon, which led to a four-year exile from politics. He returned to political life in 2005 in a failed bid to regain the Labor leadership, but became chairman once again in 2007.