Ms Ley expressed gratitude after she lost the leadership ballot 34-17, but left with a parting barb against Mr Taylor's backers who had white-anted her leadership over the preceding months.
"It is important that the new leader gets clear air, something that is not always afforded to leaders, but which, in the present moment, is more important than ever," she told reporters in Canberra.
Ms Ley said she would tender her resignation in coming weeks following 25 years in parliament, which would then spark a by-election in her regional NSW seat of Farrer.
She said she had no hard feelings for her detractors and wished Mr Taylor well.
"I know he has experience, energy and drive. I know the whole team will have what it takes to fight this awful Labor government. I will be cheering them on," she said.
Ms Ley entered and emerged from the meeting in a suffragette white suit, flanked by her moderate backers.
She becomes the party's second shortest-serving leader, eclipsing Alexander Downer by only 24 days.
Victorian senator Jane Hume toppled incumbent deputy Ted O'Brien for the deputy leadership.
She won the deputy leadership, coming through a contested field that also included Mr O'Brien as well as Dan Tehan and Melissa Price.
The Victorian senator won the final ballot over the shadow treasurer 30-20, with one informal vote.
Senator Hume won the first round with 20 votes while Mr O'Brien was second with 16, Mr Tehan third with 13 and Melissa Price in last with two.
Mr Tehan's numbers ultimately fell behind Senator Hume.
Mr Taylor had pledged a new direction for the Liberals after the party slumped to historic lows in the polls and was overtaken by minor right-wing party One Nation.
The nascent leader is already facing criticism for deposing the first female leader, with her supporters arguing she wasn't given enough time in the job and had constantly been undermined by the conservative faction.
Labor had already released its attack ads on Mr Taylor minutes after the party room concluded, previewing where it would focus its attention over the next two years: his economic credibility.
Mr Taylor was the shadow treasurer and Senator Hume the finance spokeswoman during the Liberals disastrous election showing in 2025, when they ran a platform of higher taxes.
Treasurer Jim Chalmers wasted no time in tearing down his old sparring partner.
"Angus has zero credibility on the economy and neither does the bin fire that is the coalition," he said.
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