UPDATE 5-Another minister quits UK govt, tells Brown to go
* Rising star quits cabinet, urges Brown to go
* Resignation raises changes of challenge to Brown
* Brown's party expected to do badly in local, EU polls
(Adds Downing Street reaction, analyst comment)
By Adrian Croft
LONDON, June 4 (Reuters) - A third senior minister quit the British government on Thursday, calling on Prime Minister Gordon Brown to quit to improve his party's chances at a general election due within a year.
James Purnell's resignation, announced in a letter printed by The Times newspaper, is a direct attack on Brown's authority and increases the possibility of a challenge to his leadership of the ruling Labour Party.
Purnell, work and pensions secretary, a rising star in the Labour Party, is the third cabinet minister this week to resign. He said he was not seeking the party leadership but his dramatic intervention could embolden a challenger to emerge.
News of the letter broke as polls were closing in local and European elections in which Labour, in power for 12 years, was expected to suffer heavy losses at the hands of the centre-right opposition Conservatives.
Brown only found out about Purnell's resignation at about the same time that he went public with the news, according to Brown's spokesman.
The spokesman said Brown was disappointed by the news but would focus on restructuring the government to guide the economy through the downturn and rebuild trust in parliament, which has been tarnished by a scandal over politicians' perks.
Brown is expected to reshuffle his government soon after Thursday's elections.
Purnell's spokesman could not be reached for comment.
The opposition Conservatives stepped up their calls for an immediate national election. "It's clear that we have a completely paralysed government at the moment," Conservative economics spokesman George Osborne told Sky News.
Labour has slumped in the opinion polls as the government struggles to counter a severe recession. In recent weeks, Labour and the other main parties have all been damaged by reports of members of parliament abusing their expense accounts.
CALL TO STAND ASIDE
Purnell, 39, told Brown in the letter published by The Times: "I now believe your continued leadership makes a Conservative victory more, not less, likely.
"I am therefore calling on you to stand aside to give our party a fighting chance of winning."
Health Secretary Alan Johnson is seen as the front-runner to replace Brown. Johnson said on Wednesday that Brown was the best man for the job, but the BBC's "Newsnight" programme reported that he had a "structure in place" for a leadership campaign.
Analysts said Brown was now badly wounded and other critics might emerge from the shadows.
"The question is, 'Are there others and are they like minded'? It wouldn't take more than three or four more resignations before Gordon Brown couldn't form a government," said professor John Curtice of Strathclyde University.
"One of the cards in the deck of cards has fallen."
Brown replaced Tony Blair in 2007 in mid-term in the current parliament and it would be hard for another new leader to resist calls for a national election.
Purnell's move came as Labour rebels plotted the prime minister's departure.
Reports said up to 75 Labour members of parliament -- around a fifth of the total -- were ready to sign a letter calling on Brown to go although none had been identified yet.
Earlier on Thursday, a rumour that Brown was resigning, dismissed by his office as "absolute nonsense", sent the pound three cents lower against the dollar in minutes -- a taste of how markets might react to a leadership coup during the worst recession in decades.
Earlier this week, communities minister Hazel Blears and Britain's first female interior minister Jacqui Smith pre-empted their expected replacement in the cabinet by quitting.
Rather than galvanise his grip on power, Brown's reshuffle risks further instability because finance minister Alistair Darling does not want to move, but the prime minister has been considering replacing him with longtime ally Ed Balls.
Foreign minister David Miliband has also said he wants to stay in his post, limiting Brown's room for manoeuvre.
For the text of Purnell's letter please click on [nL4543143] (Additional reporting by Keith Weir; editing by Michael Roddy)