The Liberal leadership race is now between front-runner Stephane Dion and Michael Ignatieff after a third round of votes that pushed Bob Rae out of the race.

"Whoever will win, Ignatieff or me, we will have a united party for a united Canada," a jubilant Dion told CTV News.

"It's always been up to the delegates and the delegates are going to be the ones to decide what is in the interest of the people of Canada," Ignatieff told reporters after the results were announced.

"It's democracy at it's best. I enjoy it," former prime minister Jean Chretien told CTV News on the convention floor.

Dion has 37 per cent support after the third ballot, up from the 20.8 per cent he got in the earlier round.

Ignatieff has climbed to 34.5 per cent from 31.6 per cent, leaving him out of the top spot for the first time since the race began.

The magic number is 2,409. To get there, Dion needs 627 more votes. Ignatieff needs 749 more votes.

Political operatives worked the floor furiously as Dion and Ignatieff looked to gain delegate-by-delegate support.

Hockey legend Ken Dryden, who first endorsed Rae after being knocked out of the second ballot, shifted his support to Dion after the third round. Dion also gained the support of former finance minister Ralph Goodale.

Ignatieff gained new backing with Judy Sgro and Scott Brison, who initially threw their support to Rae after the first ballot.

"I've been 80 per cent in Mr. Ignatieff's campaign right from the very beginning. I've watched, I've watched, I've watched. You know what? I'm glad Mr. Ignatieff is where he is. This is the last ballot, let's move forward to victory," Sgro said.

While waiting in line to vote for the third round, former Liberal deputy prime minister Anne McLellan said she ran into some Ignatieff supporters who are feeling the heat.

"We ran into people in line, Ignatieff supporters, who are feeling they are in a situation of grave danger at this point if the final ballot is Dion and Ignatieff," McLellan told CTV News.

Rae dropped out of the race after securing only 28.5 per cent on the third ballot.

Here are the complete third-round results, with the first- and second-ballot numbers in parentheses:

• Stephane Dion: 1,782 votes, 37 per cent (17.8; 20.8)
• Michael Ignatieff: 1,660 votes, 34.5 per cent (29.3; 31.6)
• Bob Rae: 1,375 votes, 28.5 per cent (20.3; 24.1)

CTV's Tom Clark reports that the word within the Rae camp is that the bulk of his delegate support will move over to Dion, which will seal the race for the former Liberal cabinet minister.

After he was knocked out of the race, Rae told his delegates that they were free to vote with their "mind and conscience," CTV's Graham Richardson reported from the convention floor.

When asked who he would be backing, Rae told CTV News that he was following his own advice but declined to reveal his pick.

"It's not appropriate for the third-place finisher to determine who will be the first-place finisher,'' said the former Ontario premier.

Fourth round voting is now underway in Montreal.

Second ballot set the scene

Dion saw his first jump in support after he received the backing of  Kennedy, who placed fourth in the second ballot.

But Ignatieff's campaign stalled when he failed to pick up support from rival candidates who dropped out of the race after the second ballot.

Kennedy, whose delegation was situated on the opposite side of the hall from Dion's, caused a mob scene when he began inching his way past Rae's and Ignatieff's camps.

"I could have stayed on, there might have been sparks for me but frankly I am in this for a reason," Kennedy told reporters after walking over to Dion's camp.

"And my reason is for the Liberal Party to be the kind of party that it can be, and Stephane has this capacity and he is in a better position to do it than me," said Kennedy, who finished in fourth place in the second ballot voting at the party's national convention in Montreal.

"He's a great Canadian,'' said Dion. "I'm so proud to have Gerard with me now.''

Kennedy told CTV News that most of his supporters have followed him across the floor to Dion.

"I can guarantee you the vast majority of our folks are with Mr. Dion and happily so. They recognize in him the strongest echo of what we were trying to do and so our campaign lives on with Mr. Dion," Kennedy said.

Montreal's Palais des congres has been the scene of a nail-biting convention since the speeches wrapped up Friday night.

The first brokered deal of the convention was between Rae and Joe Volpe, who dropped out to pledge his support for Rae just after Ignatieff finished his speech on Friday night.

On Saturday morning, Dion got off to a good start, when Martha Hall Findlay threw her support to the former Liberal cabinet minister.

"In my speech last night I said we needed brains, hearts and guts. Stephane has all three," said Hall Findlay, who finished last in the first-round voting.

Just a few minutes after Hall Findlay announced her move on Saturday morning, Brison moved over to the Rae camp.

"Bob has a tremendous understanding of Canada and its institutions, and I believe he will make an exceptional prime minister and I think he contrasts very well with Stephen Harper who holds Canada's guiding institutions in contempt," Brison told reporters.

Former Prime Minister Paul Martin speculated Saturday afternoon that the Liberals could pick a new leader before long but he refrained from guessing who would take the party crown.

"What I've learned from previous leadership conventions is not to try to guess, that's up to you and that's up to the pundits who are up in the booth," he told CTV News.

With files from The Canadian Press