Turkey's parliament has failed for a second time to elect the Islamist-rooted governing party's candidate for president, Abdullah Gul.
Mr Gul and Mr Erdogan have denied they have an Islamist agenda
Mr Gul, the only nominee, withdrew his candidacy after the vote was rendered invalid by an opposition boycott.
Turkey's governing AK party is now expected to focus its attention on early parliamentary elections in July.
It is also pushing for the president to be elected directly by the Turkish people, instead of by parliament.
MPs had also failed to get a quorum in the first round last month, leading that vote to be annulled by the constitutional court.
After the first round of the vote was cancelled, Mr Gul's AK party said it had been like "firing a bullet at democracy".
2 May: Ruling party requests early elections
6 May: Suggested first re-run of parliamentary election for president
16 May: President Ahmet Necdet Sezer's term ends
22 July: Likely date for early general election (currently set for November)
The party's leader, Prime Minister Recep Tayyip Erdogan, called for an early election for 22 July, and proposed electoral reforms.
He said he wanted the president to serve up to two five-year terms, instead of one seven-year term, and for parliament's term to last four years instead of five.
Mr Erdogan also said he wanted the president elected by the people not parliament.
On Saturday, thousands of protesters attended rallies in western Turkey to call for Mr Gul, the current foreign minister, to withdraw and for the secular system to be upheld.
The BBC's Sarah Rainsford in Istanbul says the key question is who the ruling party will nominate as its new candidate and whether it will seek a compromise figure not associated with political Islam.
Speaking after Sunday's failed vote, Mr Gul said: "After this... my candidacy is out of the question. I don't feel resentment."
Parliament had required a quorum of 367 MPs - or two-thirds - for Sunday's vote but was only able to muster 358, Parliamentary Speaker Bulent Arinc said.
The AK holds 350 seats in parliament.
The row over the presidency has exposed deep divisions in Turkey.
The army, which has long regarded itself as the guardian of the country's secular constitution, has voiced its opposition to Mr Gul's candidacy.
It believes Mr Gul has an Islamist agenda, an allegation he denies. He has pledged to adhere to the republic's secular principles if he were elected.
Mr Gul's promise was not enough, however, to stop further protests by tens of thousands of secular Turks against his candidacy in the towns of Manisa and Canakkale on Saturday.
Earlier demonstrations in Ankara and Istanbul drew more than a million.
The term of the current president, Ahmet Necdet Sezer, finishes on 16 May.