Jeremy Hunt narrowly beat Michael Gove in the final ballot of Tory MPs, and will now go head-to-head with Boris Johnson in the run-off.
Mr Hunt, the foreign secretary, won 77 votes to Mr Gove's 75, while Mr Johnson maintained a commanding lead and finished with 160 votes.
Sajid Javid was eliminated from the race earlier in the day, but declined to endorse any of the other candidates.
As it happened...
Good morning and welcome to The Independent's live coverage of the Tory leadership race, as the rivals compete to take on Boris Johnson.
Jeremy Hunt, Michael Gove and Sajid Javid also remain in the contest, but two rounds on voting on Thursday will whittle down the field to a final pairing.
At each round the MP with the lowest total will be eliminated, with the result of the first round announced at 1pm and the final announcement due to be made at 6pm.
In yesterday's ballot, Mr Johnson received 143 votes, up from 126 on Tuesday, with Mr Hunt on 54, up from 46.
Mr Gove was in third place, up 10 from 41 to 51 votes, while Mr Javid picked up five extra votes to reach 38.
Rory Stewart was eliminated from the contest after his tally fell from 37 to 27.
Here's Benjamin Kentish with the full story:
Boris Johnson tops Tory ballot as Rory Stewart eliminated
International development secretary is booted out of race after coming last, prompting frantic scramble to win backing of his supportersMr Stewart suggested there had been "shenanigans" in the run-up to the ballot, but after the result he told ITV's Peston: "I don't think it was dirty tricks by Boris.
"I think what happened is that somehow some combination of my message and momentum convinced the other camps to tighten up, so I think most of my votes will have gone to Michael Gove, Jeremy Hunt and some to Sajid."
Sources in Mr Johnson's camp played down a report in the Daily Telegraph that his supporters might lend their votes to Mr Javid in order to knock Mr Gove out of the contest.
Mr Gove's decision to stand for the leadership in 2016 effectively torpedoed Mr Johnson's campaign then and the wounds have not healed.
But Brexiteer MP Andrea Jenkyns, who is backing Mr Johnson, told ITV's Peston there would be "some poetic justice" if the bitter rivals were in the final run-off.
She said that although there were "tricks going on" in the contest, Mr Johnson's campaign was not to blame.
Mr Gove insisted "I do think I would be a better prime minister than Boris" but "he has formidable qualities and he is a big part of the Conservative Party's and the country's future".
While Mr Johnson has "communication skills aplenty", the environment secretary told LBC that "I believe that I would be better equipped than any of the other candidates" to take Jeremy Corbyn "to the cleaners" with a "forensic" examination of his policies.
Mr Stewart, who was knocked out in last night's vote, has said he will not declare his support for any of the remaining candidates.
"I will not be declaring for anyone today - but I will be voting," he tweeted.
Amid speculation that Mr Javid has his eyes on becoming Mr Johnson's chancellor, the home secretary insisted his sights were set on Number 10 and he was "in it to win it".
Mr Hunt said he was the person best-placed to take on Mr Johnson, promising to put his "heart and soul" into the contest.
"The stakes are too high to allow anyone to sail through untested," he said.
David Davis, the former Brexit secretary, defended Mr Johnson's championing as London mayor of the doomed Garden Bridge project which eventually collapsed despite £43m of public investment.
Mr Davis told BBC Radio 4's Today programme: "It's a single mistake. So what?
"I'm talking about a man who is going to make this economy, this country much bigger than it is.
"That's going to make that sum of money look tiny by comparison."
Mark Rutte, the Dutch prime minister, said the UK's next prime minister needs to realise a no-deal Brexit would be bad for the country, telling the Today programme: "With a hard Brexit, even with a normal Brexit, the UK will be a different country.
"It will be a diminished country. It is unavoidable."
Mr Rutte made clear there could not be a transition period if a withdrawal agreement was not in place, telling the BBC: "As Boris Johnson would say, Brexit is Brexit.
"I would say a hard Brexit is a hard Brexit. I don't see how you can sweeten it."
Here's more from Ashley Cowburn:
Dutch prime minister knocks down Brexit promises of Tory leadership hopefuls one by one
Mark Rutte also claims UK will be 'diminished' as a country under any type of Brexit
Voting in the fourth ballot of the Tory leadership election has begun.
Ahead of a speech in which Philip Hammond, the chancellor, is set to warn of the dangers of leaving the EU without a deal, shadow chancellor John McDonnell tweeted: "When Boris Johnson's policies of a no deal Brexit and wild tax cuts to the rich make the architect of austerity, Philip Hammond, look like the voice of moderation you can see how far to the extreme and irresponsible right the Tory party has drifted."
Jacob Rees-Mogg, who supports Mr Johnson, said any "dirty tricks" vote transfer campaign by supporters of the former foreign secretary to try and knock Mr Gove out of the contest would be "silly".
Mr Rees-Mogg told the Press Association: "I think people should always vote for the candidate they support. It is really silly to try and game elections because you can find that your candidate then loses. Vote for the candidate you support is what I have been saying on my side of the argument."
Michael Gove was challenged to praise his leadership rival Jeremy Hunt in the Commons.
Vicky Ford, the Tory MP for Chelmsford, invited the environment secretary to join her in recognising the foreign secretary's "amazing diplomatic success" in trying to secure a climate change conference.
Mr Gove, in his reply, joked: "The foreign secretary has done an outstanding job on the diplomatic stage and continues to do so, and will continue to do so by making sure that we co-operate with our partners across western Europe, including Italy, to ensure the Conference of Parties in 2020 brings nations together in order to deal with this global challenge."
The Evening Standard has announced it is backing Mr Johnson for prime minister.
Our political correspondent Ashley Cowburn is outside of the room where voting is taking place. He writes:
Voting has started in the fourth round of the Conservative leadership contest — as he left the room Michael Gove said Tory MP Michael Fabricant was his “defence against the dark arts”.
As he left the room, Mr Hunt said he was “confident - but not over confident” when asked about making the final two, Ashley Cowburn reports.
Iain Duncan Smith, the former Tory leader who backs Mr Johnson, told the Press Association: "I have been here long enough to know that the only dirty tricks is that MPs never tell you always the truth when it comes to leadership elections. They are unorganisable."
Ashley Cowburn: Boris Johnson was asked how he celebrated his 55th birthday yesterday as he left the voting room. “In style,” he replied.
Asked if he knew anything about dark arts when he arrived to vote, Mr Johnson said: "No."
Asked if there was a "dirty tricks" campaign against him, Mr Gove told the Press Association: "I know there is a campaign for me with wonderful, wonderful people."
He added: "I'm looking forward to being in the final two as a result of the strong support I have across the party."
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