Sigurdur Ingi Johannsson, the deputy chair of Gunnlaugsson’s Progressive Party, announced the resignation on national public broadcaster RUV.
Johannsson said he will take over. But he said Gunnlaugsson will remain head of the Progressive Party — which might not go down well with some Icelanders who want nothing to do with him.
But Gunnlaugsson’s resignation doesn’t mean the dust has settled.
On Tuesday evening, protesters took to the streets of Reykjavik, demanding a change of government. They decried Johannsson’s new role as Prime Minister, saying he was not elected.
“We demand new elections after (the) Panama Papers scandal … ” protester Dominika Skwarska told CNN’s iReport. “There is no other acceptable option. New elections should be held now.”
Finance Minister Bjarni Benediktsson said that he and Johannssson would discuss the next steps for ongoing cooperation between the two parties, but that this would take several days, he told reporters.
Benediktsson, head of Iceland’s Independence Party, said he planned to meet with Johannsson to seek cooperation. The two parties have been working in a center-right coalition government.
Gunnlaugsson’s critics said the revelations involving the offshore company, which allegedly had holdings in Iceland’s collapsed banks, shattered public confidence in his leadership and could harm the country’s international reputation.
Elected leaders implicated
Gunnlaugsson was one of numerous world leaders under scrutiny since a group of news organizations jointly published reports Sunday.
The reports accuse Gunnlaugsson of having ties to an offshore company, Wintris Inc., that were not properly disclosed.
CNN hasn’t been able to verify independently the leaked documents, which German newspaper Sueddeutsche Zeitung obtained from an anonymous source and then shared with the International Consortium of Investigative Journalists.
Gunnlaugsson has not responded to a request for comment from CNN.
But he told Iceland’s TV2 on Monday that he felt “betrayed and disappointed” by the accusations. During that interview, he said he wouldn’t step down.
“I have not considered resigning, nor am I going to resign, because of this matter,” he said Monday, a day before doing so.
Mossack Fonseca said in a statement to CNN on Monday that while the firm “may have been the victim of a data breach, nothing we’ve seen in this illegally obtained cache of documents suggests we’ve done anything illegal, and that’s very much in keeping with the global reputation we’ve built over the past 40 years of doing business the right way.”
Questions over declaration of interest
The journalism organization alleged the shell company was used to invest millions of dollars in inherited money, and that Gunnlaugsson did not disclose, as required by parliamentary rules, that he co-owned Wintris when he entered parliament in April 2009.
He had “therefore followed the rules for declarations of interests ever since he took a seat in parliament in 2009, regardless of how you look at this case,” the statement read.
On the last day of 2009, Gunnlaugsson sold his half of the company — headquartered on Tortola in the British Virgin Islands — to Palsdottir for $1, the International Consortium of Investigative Journalists reported, citing the leaked documents.
“Some people find that in itself very negative. I can’t do much about that because I’m neither going to divorce my wife nor demand that she relinquish her family inheritance.”
The journalism group reported that among Wintris’ more notable holdings were bonds of three major Icelandic banks that collapsed in 2008. It said it was not clear how Gunnlaugsson’s political activities could have affected the bonds’ value.
Gunnlaugsson said in his statement on his website that his wife had never benefited from his political activities — “quite the contrary.”
“My political participation and the policies I have fought for have resulted in her wealth being decreased,” he wrote.
CNN’s Inga Thordar, Jethro Mullen, Bharati Naik, Vasco Cotovio, Laura Perez Maestro, Catherine E. Shoichet and David Williams contributed to this report.