The man holding the seat Nick Xenophon wants to take in South Australia's parliament has urged the senator to "bring it on".
The NXT leader is quitting federal politics to stand as a candidate for his SA Best party in next year's state election.
He says he is confident of strong support in his local seat of Hartley in Adelaide's east.
But sitting Liberal MP Vincent Tarzia, who won the seat from Labor 2014, has indicated he is up for the challenge.
"Bring it on. I'll keep working hard for the community," Mr Tarzia tweeted immediately after Senator Xenophon's announcement.
In other reaction, SA Treasurer Tom Koutsantonis said the senator's move would plunge the Liberals into crisis.
"They are facing a massive insurgency in their backyard," he said.
Federal Defence Industry Minister Christopher Pyne said a vote for Senator Xenophon risked 20 years of Labor government in SA.
State Liberal leader Steven Marshall told FiveAA radio that supporting Senator Xenophon's SA Best party was "risky" for voters.
But he said any sort of preference deal to blunt the senator's run was a matter for party president John Olsen.
One Nation senator Malcolm Roberts, who faces likely eviction from parliament following the High Court citizenship case, was quick to dance on his old foe's federal political grave.
He said it was "wonderful" the South Australian crossbencher and Senate powerbroker was bowing out.
"Now he'll be able to get out of horse trading and he'll be held accountable in South Australia, and that's exactly what we need to do with Nick Xenophon," he told Sky News.