Head of Britain's biggest union Len McCluskey, has resigned, but will stand again in the ensuing leadership contest, triggering a fight for control of Labour's most generous donor.

The head of Unite announced on Tuesday he would try to win a third term in office after days of speculation over his future. The decision is a gamble by McCluskey and his supporters to maintain control of the union and its influence over the Labour party. Unite has 1.4 million members and has given millions of pounds to the party.

Gerard Coyne, Unite's regional secretary for the West Midlands, is expected to stand against McCluskey. His supporters say there is "everything to play for".

McCluskey's current five-year term is to end in 2018, so he is effectively bringing the election forward a year. The 66-year-old would have come under pressure to retire if he had stayed until the end of the scheduled term.

Coyne, a relative centrist in a union whose activists are dominated by leftwingers, will be backed by many in the parliamentary Labour party who were angered by McCluskey this summer. During the attempt to force Jeremy Corbyn to stand down as Labour leader, McCluskey issued veiled threats to deselect some MPs, whom he called "traitors". 

Unite continues to exert influence within Labour by funding Corbyn's office and MPs' offices, and votes on the national executive committee and on key policy decisions.

Many believe that McCluskey had a crucial role in persuading Corbyn, a lifelong unilateralist, to allow the parliamentary party a free vote on the renewal of Trident. Unite has many members who work in the nuclear sector. 

The current assistant general secretary, Gail Cartmail, will act as leader for the election period, a move McCluskey said would ensure "that, while I am a candidate for re-election, the business of Unite remains properly managed".

The timetable was agreed by Unite's executive on Tuesday. Balloting will start in March and end on 28 April.

McCluskey's influence and the union's money have been crucial in winning the Labour leadership for Corbyn and supporting him for 15 months.

McCluskey was elected as general secretary in November 2010, a few months after Ed Miliband became Labour leader. He was re-elected in 2013 for a five-year term, but if he wins a new mandate, it would authorise him to continue his support for Corbyn's leadership.

McCluskey's decision to resign will be seen as a gamble in some quarters because some members remain concerned by Corbyn's support for a ban on fracking and his lukewarm support for nuclear power. However, the union leader has a high profile, which has been carefully nurtured this year to appeal to the mainly leftwing activists who tend to vote in Unite elections. 

A Militant sympathiser in the 1980s, McCluskey was national secretary of the Transport and General Workers' Union and became assistant general secretary of Unite, formed from a merger of the TGWU and Amicus. He was criticised by some council members after the Guardian disclosed that the union had helped him to buy a £700,000 flat near Borough Market in south London.

Coyne, who was born in West Bromwich and is the son of a fire brigades union activist, is expected to announce his candidacy on Wednesday. He will promise to focus on returning the union to its members - a tactic that will be seen as a way of highlighting McCluskey's alleged preoccupation with the Labour party. 

One Coyne supporter said: "He will be standing on a ticket of devoting his time to the job of general secretary to Unite. The current incumbent seems to be spending more time as general secretary of the Labour party." 

A new union faction calling itself Unite Alliance hopes to take up positions on the executive council next year, according to the group's website.

Unite Alliance's website calls on Unite's members to recognise that McCluskey has done a good job. It said: "We are fortunate to currently have a general secretary in Len McCluskey who always has and always will have members' best interests at heart and who truly believes in a 'fighting back union'."

The announcement follows days of denials and unanswered questions to Unite officials and press officers.