Mr Taylor on Wednesday resigned from the Liberal front bench, where he had served as opposition defence spokesman.
Party conventions require anyone who wants to challenge their leader to step down from a portfolio.
The resignation comes before an expected leadership spill, although Mr Taylor did not say whether he had requested Ms Ley for a ballot or for a party room meeting.
The resignation allows Mr Taylor to openly canvass for votes before a likely ballot.
He said the party had lost its way under Ms Ley's leadership.
"The Liberal Party is at the worst position it has been since 1944, when the party was formed," he told reporters in Canberra.
"That is a confronting reality and we cannot ignore it. We have failed to hold a bad Labor government to account.
"I don't believe Sussan Ley is in a position to be able to lead the party, as it needs to be led from here.
"What we need right now is strong leadership, clear direction and a courageous focus on our values."
Mr Taylor said the delay tendering his resignation on Wednesday was due to Ms Ley holding a meeting with Israeli president Isaac Herzog, who was in Canberra for talks as part of a state visit.
"The process here more generally, for all of us, has been to talk about the future of our party as Liberals. We want to see a strong Liberal Party, and we know that means we need strong leadership," he said.
Supporters claim Mr Taylor has the numbers to defeat Ms Ley in a vote, but the result is anticipated to be tight.
Mr Taylor said he would consult with colleagues about the direction of the party.
"I am absolutely committed to restoring confidence in the Liberal Party, to ensure that Australians regain confidence in the Liberal Party and steering the Liberal Party back to where it needs to be," he said.
20°C