Sri Lanka's President and Prime Minister have agreed to resign after protesters stormed both officials' homes and set fire to one of the buildings in a rage over the nation's severe economic crisis. 

Prime Minister Ranil Wickremesinghe said he would leave office once a new government was in place

Hours later, the Speaker of parliament said President Gotabaya Rajapaksa would step down on Wednesday.

Pressure on both men has grown as the nation's economic meltdown has sparked acute shortages of essential items, leaving people struggling to buy food, fuel and other necessities.

On Friday, police attempted to thwart planned protests over the crisis with a curfew, but then lifted it as lawyers and opposition politicians denounced it as illegal.

Yesterday, thousands of protesters entered the capital, Colombo, and swarmed into Mr Rajapaksa's fortified residence.

Mr Rajapaksa had left the official residence on Friday as a safety precaution ahead of the planned weekend demonstration, two defence ministry sources said.

Protesters later broke into the Prime Minister's private residence and set it on fire, Mr Wickremesinghe's office said.

It was not immediately clear if he was there when the incursion happened.

In a statement, parliamentary Speaker Mahinda Yapa Abeywardena said the decision for Mr Rajapaksa to step down on July 13 was made to "ensure a peaceful handover of power" and he asked the public to "respect the law and maintain peace".

Loading

Earlier, police fired tear gas at protesters who gathered in the streets to march on the presidential residence while waving flags, banging drums and chanting slogans.

Riot police could be seen using water cannons and tear gas to try to disperse the crowd.

Protesters also forced their way through heavy metal gates into the finance ministry and the President's seafront offices.

At least 39 people, including two police, were injured and hospitalised in the protests, hospital sources said.

Protesters in presidential pool

A Facebook live stream from inside the President's house showed hundreds of protesters, some draped in flags, packing into rooms and corridors, shouting slogans against Mr Rajapaksa.

Video footage showed some of them splashing in the swimming pool, while others sat on a four-poster bed and sofas.

Loading

Some could be seen emptying out a chest of drawers in images that were widely circulated on social media.

Hundreds milled about in the grounds of the colonial-era whitewashed residence, with no security personnel in sight.

Loading

'A dicey situation'

The island nation of 22 million people is struggling under a severe foreign-exchange shortage that has limited essential imports of fuel, food and medicine, plunging it into a financial crisis.

Many blame the country's decline on Mr Rajapaksa and have demanded his resignation.

Discontent worsened in recent weeks as the cash-strapped country stopped receiving fuel shipments, forcing school closures and rationing of petrol and diesel for essential services.

Despite the severe shortage of fuel that has stalled transportation services, demonstrators packed into buses, trains and trucks from several parts of the country to reach Colombo to protest against the government's failure to protect them from economic ruin.

Sampath Perera, a 37-year-old fisherman, took an overcrowded bus from the seaside town of Negombo, 45km north of Colombo, to join the protest.

"We have told [the President], Gota, over and over again to go home, but he is still clinging onto power," Mr Perera said before the president announced his resignation.

He is among the millions squeezed by chronic fuel shortages and inflation that hit 54.6 per cent in June.

Political instability could undermine Sri Lanka's talks with the IMF as it seeks a $US3 billion ($4.3 billion) bailout, a restructuring of some foreign debt and fundraising from multilateral and bilateral sources to ease the dollar drought.

The IMF said it is hoping for a resolution.

"We hope for a resolution of the current situation that will allow for resumption of our dialogue on an IMF-supported program," the IMF said in a statement.

"This is a dicey situation," political analyst Kusal Perera said.

"The Speaker can appoint a new all-party government, but whether they will be accepted by the protesters remains to be seen."

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.

Watch

Duration: 4 minutes 5 seconds4m 5s

Reuters