Iraq appears in the grip of fresh political turmoil, as Shia parties nominated an alternative candidate as PM to embattled incumbent Nouri Maliki.
The umbrella group voted for deputy parliament speaker Haider al-Abadi instead of Mr Maliki.
The current PM has made it clear he wants to stand for a third term, and pro-Maliki security forces took key sites in Baghdad overnight.
Mr Maliki faces calls to step down amid a jihadist insurgency in the north.
Critics say Mr Maliki, a Shia, has precipitated the current crisis through sectarian policies. Sunnis, Kurds and even fellow Shia have urged him to go.
But he made a defiant speech on Sunday accusing President Fuad Masum of violating the constitution by allegedly ignoring deadlines for appointing a head of government.
US Secretary of State John Kerry called on the Iraqi prime minister not to increase tensions, and warned against use of force by political factions.
“The government formation process is critical in terms of sustaining stability and calm in Iraq, and our hope is that Mr Maliki will not stir those waters,” he said during a visit to Australia.
Earlier the US, which has urged Iraq to form an inclusive government, issued a statement backing President Masum.
In a separate development, US officials said Kurdish forces fighting militants in northern Iraq were “being armed by various sources” and did not deny US involvement.
The Kurds have appealed for international military aid to help defeat the Islamists.
Reports say that the Shia National Alliance has voted for Mr Abadi by 130 votes to 40 for Mr Maliki.
But correspondents say Mr Maliki may still seek new alliances in parliament to put forward his candidature.
Earlier there was confusion over an apparent decision by a top court which would have boosted Mr Maliki’s chances of remaining prime minister
“The federal court announces its decision confirming that State of Law is the largest bloc in parliament,” state TV reported.
But shortly afterwards court spokesman Abdelsattar Bereqdar told BBC Arabic that it had asked President Masum to choose the bloc with the largest number of MPs without naming any bloc.
Correspondents say the question of how to define the largest bloc had been a major impediment to Mr Maliki’s ambitions since his election victory in May.
Mr Maliki had announced in a TV address on Sunday night that he was making an official complaint against the president in court.
He accused him of “committing a clear constitutional violation for the sake of political calculations and… giving priority to the interests of some groups at the expense of the higher interests of the Iraqi people”.
Mr Maliki’s coalition won the most seats in April’s elections but parliament has not agreed to give him a third term.