Party whip Nola Marino told reporters Dutton challenged but Turnbull won 48-35.
Peter Dutton speaks to the media after losing a bid for the top job.
I've always had a very good working and productive working relationship with Malcolm Turnbull.
Dutton will move to the backbench from the Home Affairs Minister position he lobbied hard to create, where he is likely to continue to agitate for the leadership. "I made a decision to contest this ballot because I want to make sure we can keep Bill Shorten from ever being prime minister of this country".
Foreign Affairs Minister Winston Peters is going to meet Julie Bishop in Australia. Support for the government has crashed.
If Mr Dutton wins today's spill he will become Australia's sixth prime minister in just eight years.
"We can not allow, as I said in the party room today, our internal issues to undermine our work", Mr Turnbull told reporters on Tuesday afternoon.
Here's how Battlefield 5 looks with Nvidia RTX effects
Normally, ray-tracing would take a serious amount of graphical power to run; we're talking Nvidia DXG supercomputer level. We don't want to fall victims of the hype and we'd need to see how these Turing cards perform in the new desktop PCs.
Malcolm Turnbull's future has already been decided. Disunity undermines the ability of a government to get its job done and we can not allow internal issues to undermine our work, or to create a real risk that Bill Shorten will be the prime minister.
Before the ballot, Environment Minister Josh Frydenberg had warned government colleagues that they would lose popularity if they dumped Mr. Turnbull. "But if it's just other people talking on Peter Dutton's behalf, then they are cowards working behind the scenes".
This was an inevitable outcome from Dutton and now means he can now lay out his own policy vision and build support for a second push at the leadership.
The relatively narrow victory may not spell the end of Mr Dutton's leadership ambitions.
Mr Turnbull said he would not proceed with the emissions target - part of his National Energy Guarantee (NEG) - because it had no prospect of passing through the House of Representatives, where he has only a slim majority.
Mr Turnbull had brought on the vote himself in a bid to resolve speculation that his leadership was under threat.
Turnbull's position remains in jeopardy despite surviving Dutton's leadership challenge, stoking expectations of further political instability in a country that has seen six different leaders since 2009.