The Federal government remains in crisis today despite Prime Minister Julia Gillard's move to kick Craig Thomson out of the Labor Party and to keep Peter Slipper away from the Speaker's chair.

Facing an angry voting public, a disgruntled backbench and revived talk of leadership change, Ms Gillard backtracked from her previous statements and said that on reflection she had decided to act over the twin scandals engulfing her government.

The Prime Minister conceded that a line had been crossed and that a ''dark cloud'' was now hanging over the Parliament.

The dramatic change of heart follows months of Ms Gillard expressing full support for Mr Thomson and recent days of insisting Mr Slipper should be able to make a quick return to the Speakership.

Mr Thomson, the subject of allegations he used his former Health Services Union credit card to pay for prostitutes, will sit on the crossbench of Parliament but continue to vote with the government.

Mr Slipper will remain stood aside as Speaker until both criminal and civil investigations, over Cabcharge fraud and sexual harassment claims, are resolved. Ms Gillard said yesterday that the public's respect for Parliament had to be restored.

''I have made a judgement call which I believe is right, because I want Australians to be able to look at the Parliament and respect the Parliament,'' she said.

''And I believe a line had been crossed about the ability of Australians to confidently say that they had respect in our Parliament.''

The Canberra Times reported on Saturday that the ongoing combined Thomson and Slipper scandals had caused an ''unprecedented despair'' among Labor backbenchers about the government's future. Yesterday, there were mixed views expressed by the backbenchers contacted by The Canberra Times.

While most saw Ms Gillard's action as necessary and decisive, some thought it might be a case of ''too little, too late''.

Following a late night phone call from the Prime Minister on Saturday, Mr Thomson agreed to suspend his ALP membership and stay in Parliament as an independent. Yesterday afternoon he confirmed that he had agreed to move to the crossbench, but he said it was for his own reasons rather than those cited by Ms Gillard.

''It's been unrelenting for four years in relation to my family, to my friends and myself,'' Mr Thomson said. ''It's also been a distraction for the government.

''I have always maintained my innocence in relation to these issues and I continue to do so.''

The Member for Dobell said he hoped to re-join the Labor caucus once he was cleared of all allegations.

Insisting that he ''remained a Labor person'', he said he would continue to support the government's agenda and vote with it.

But Opposition Leader Tony Abbott demanded Mr Thomson be stopped from voting in Parliament until the investigation was resolved.

''The Prime Minister has confirmed that there is a crisis consuming the government, but she hasn't resolved it because while she has disowned Mr Thomson, she hasn't disowned his vote,'' Mr Abbott said.

''This is a tainted government that continues to rest on a tainted vote. You cannot disown Mr Thomson and try to keep his vote.''

Mr Thomson has every right to keep voting in Parliament, but under the rules Mr Slipper will not vote.

Mr Slipper stood aside last week but said he would come back once the criminal allegations of fraud against him were resolved.

Ms Gillard and other senior ministers have spent the week defending Mr Slipper's right to the assumption of innocence and said the civil sexual harassment case did not have to be resolved before he could return to his job.

But yesterday, the Prime Minister did an about-face and said she had asked Mr Slipper to vacate the Speaker's chair for longer than he had initially intended.

She said that while both men should not be prejudged, Australians needed to be sent a message about the standards of their politicians and institutions.

''They're entitled to look at this Parliament, the building where I'm standing today, and see an institution that they can respect,'' she said.

''I understand that the matters involving Mr Slipper and Mr Thomson have caused Australians to become concerned about standards in public life today.''

Mr Slipper issued a statement yesterday agreeing that the dignity of the Parliament be upheld.

He said he would briefly address the House of Representatives when it resumes next week before handing the chair over to Deputy Speaker Anna Burke.

''This will avoid what could be a controversial debate on the floor of the Parliament, which would not assist the standing of Parliament,'' he said. ''I reject the allegations which have been made against me and look forward to resuming my role in the chamber at a future time.''

The outcome of both Mr Slipper and Mr Thomson's moves will reduce Labor's official numbers to 70 and leave the Coalition with 71. But with Mr Thomson's vote still going Labor's way and other independents suggesting the developments would not affect their support for the ALP, its minority government remains intact, albeit on shaky ground.