The leader of Ontario's Progressive Conservative Party says he has told his caucus that he will be stepping down as leader following a crushing byelection loss.

"Earlier this afternoon, I informed the caucus that I had written to the party president to tender my resignation as leader following the selection of an interim leader by the caucus," John Tory, who lost to a Liberal in the Haliburton-Kawartha Lakes-Brock byelection on Thursday night, said Friday.

Speaking to reporters at Queen's Park, Tory admitted that going into the contest, he knew the riding "would be challenging." But they couldn't find a better one for him to regain a seat in the legislature.

"We ran a good campaign, but what I would call the process issue was too dominant for too long," he said.

Liberal opponent Rick Johnson, who has lived in the riding for 22 years, defeated Tory in the PC-friendly east-central riding on Thursday evening.

According to unofficial results posted to the Elections Ontario website, Johnson received 15,482 votes, while Tory received 14,576 votes -- a 906-vote margin of victory. Johnson thinks Tory's lack of roots in the area made the difference.

Prior to Thursday, the riding had been continuously held by PC candidates since 1994. Former MPP Laurie Scott, who stepped aside for Tory, had won by about 10,000 votes in 2007. Proportionally, Tory lost about 20 per cent of the support Scott enjoyed. Johnson saw his vote share rise by almost 50 per cent. He would have picked up from the NDP and Greens, but much of that support would have come from people who previously voted Conservative.

However, the Liberals put some effort into keeping Tory out of the legislature. About a week before calling the election, the government announced that Highway 407, the toll road, would be extended to Clarington -- and kept under provincial control. The Tory government of Mike Harris privatized the original Highway 407. Tory had promised to make highways an issue.

Premier Dalton McGuinty and some cabinet colleagues campaigned for Johnson.

Before Tory's announcement, McGuinty had already thanked Tory for his "dedication to public service."

McGuinty said he had his differences with Tory on political issues, which is part of democracy, but he never doubted his opponent's integrity or commitment to Ontario.

But MPP Bill Murdoch, kicked out of the P.C. caucus for challenging Tory's leadership of the party, said the defeated candidate's "egotism" had hurt the party.

Tory's rocky road

Tory has been involved with the Progressive Conservative party for more than 40 years, becoming party leader in September 2004.

His future as party leader has been in question since the 2007 provincial election defeat, which handed McGuinty a second consecutive majority government and left Tory seatless. Tory supported a controversial proposal to extend public funding to all faith-based schools.

Tory received only lukewarm support in a January 2008 PC leadership review and has fought off continued calls for his resignation -- especially from the harder-edged believers in Harris's "Common Sense Revolution."

"If there is work to do, it is on unity," Tory said. "We must pull together a diverse group of wonderful activists, broadening the base through outreach as I did, cementing a place for ourselves in the mainstream of Ontario's political culture."

The party must be united going into the 2011 provincial election, he said, adding he found the unity issue to be very challenging. "I hope the new leader is blessed with greater success on this file, as I believe it is so important to our overall goal of achieving government," Tory said.

Following Tory's Thursday evening defeat, the newly-elected Johnson paid tribute to his hard-working opponent, who has struggled to make his mark as a politician.

"I guess it's like in baseball: three strikes and you're out - and that's what John's dealing with," Johnson said when celebrating his win at a pub.

"But I have respect for John. He's done great things for this province and this country, and we haven't heard the last of John."

Tory, who began his political career working for former Ontario premier Bill Davis, also ran for mayor of Toronto in 2003. He lost to David Miller.

Outside of politics, Tory has practiced law, served as an executive at Rogers Media, as well as Rogers Cable, and is a former CFL commissioner.

Tory's regrets, future

Tory got emotional in thanking his "wonderful" staff for putting up with him "in terms of my constant desire to do better" and to his family, at which point he had to stop and compose himself.

Tory also said he felt he got an overall fair, professional shake from the news media.

"I will end somewhere where I can make a difference," he said.

"Circumstances made it such that I quite frankly had less time to make the difference I think I could have made in the past few years," he said, his voice shaking.

"I ended up, as circumstances dictated, fighting six major campaigns in a five-year period in politics," Tory said. "What that meant is I spent too much time campaigning, and too little time on the things that mattered to me."

But experience has taught him that one can make a contribution to public life outside of politics, he said.

"I have a ton of energy, I have a little bit of ability, I have lots of compassion and my integrity is intact -- and that is something that I'm very proud of after 4½ years in politics," Tory said.

Possible successors

Two veterans of the Mike Harris years, now federal cabinet ministers, took themselves out of the running.

Finance Minister Jim Flaherty and Transport Minister John Baird both say they are happy in their current jobs.

Baird did say it will take a significant amount of soul searching" to get the provincial party ready to challenge for power in 2011.

Kitcher-Waterloo MPP and deputy party leader Elizabeth Witmer indicated she may run for the job and that up to seven people might eventually run.

Other names being speculated about include:

• Niagara West Glanbrook MPP Tim Hudak, the party's finance critic
• Thornill MPP Peter Shurman, a first-term politician and former broadcaster
• Lanark, Frontenac, Lennox and Addington MPP Randy Hillier, a first-time politician and former rural rights activist
• Whitby-Ajax MPP Christine Elliott, Flaherty's wife
• Waterloo-Wellington MPP Ted Arnott

CTV Toronto's Paul Bliss said whoever take over will face a rebuilding job, particularly in the area of fundraising.

In the meantime, with the NDP electing a new leader this weekend, the two opposition parties don't appear well-placed to hold the McGuinty government to account.

With a report from CTV Toronto's Paul Bliss and files from The Canadian Press