Thursday's mass resignations were aimed at jolting the Fatah into the reforms needed to bolster Palestinian support.
"Thirty-two young guard leaders from the West Bank have resigned collectively to protest the mismanagement of the movement by the executive Fatah Central Committee," Husain al-Shaikh, one of the leaders who quit, said.
Palestinian resistance movement Hamas did not run in presidential elections in the Israeli-occupied West Bank and Gaza Strip in January, making for an easy win by moderate Fatah veteran Mahmud Abbas.
But a strong showing by Hamas in local polls suggests it could enjoy major gains in parliamentary elections set for July.
"The young guards have decided to take the initiative to salvage Fatah," Ahmad Ghunaim, another leader who resigned, said.
"Otherwise Hamas will take over in upcoming legislative elections just as it did in the municipal elections in Gaza.
"This step is not aimed at confronting the old guard, rather it is an attempt to save Fatah from disintegration," he added.
Another official said: "The old guards have to take responsibility for Fatah's weakness and failure in the municipal elections."
By challenging the Fatah old guard, the rebels aimed to unite the young guards behind Abbas and his efforts to hold together a ceasefire declared last month with Israeli Prime Minister Ariel Sharon.
Senior Fatah officials in the Palestinian Authority said they were unaware of the move and refused to comment.
While 40-year-old Fatah is respected by most Palestinians as the founding faction of their statehood struggle, it has in recent years fallen from favour amid corruption allegations.
The last elections for the Fatah leadership were in 1989. Under pressure from young activists who demanded a shake-up, the faction chiefs have agreed to new elections in August.
"We have decided to hold primaries to choose our own candidates to run for the legislative elections," al-Shaikh said.