Babacan resigned from the Justice and Development Party (AKP) in July after exacerbating disagreements with AKP leadership and leader Erdogan.
Babacan is one of the founding members of the AKP and served as Minister of Economy and Foreign Affairs in his early years in power before becoming deputy prime minister.
In an interview with a local Turkish newspaper published on Tuesday, Babacan said he would form a political party at the end of this year to challenge the ruling Justice and Development Party of Recep Tayyip Erdogan.
Babacan also told the newspaper he was "still working to find people like him" to form a team to lead the new party. "This will take some time. We want to form the party before 2020. Quality is important here."
A Babacan-led party could undermine the Turkish president's supporters' base, as the former man and former ally could attract people from the AKP base.
The AKP suffers from splits within the party as a result of Erdogan's uniqueness of the party's decisions and the state and its erroneous domestic and foreign policies that are leading the country towards destruction.