He served as Finance Minister in the second cabinet Hagerup, and was one of the strongest proponents of a more firm policy towards the union between Sweden and Norway.

In March 1905, Michelsen replaced Francis Hagerup as Prime Minister, and immediately became the leader of the movement towards dissolution of the union (Unionsoppløsningen i 1905).

[5] The formal basis for the dissolution was King Oscar II's refusal to accept the Norwegian consular laws (Konsulatsaken).

While this supremacy existed in reality, Norwegians were unwilling to accept the unequal relationship on a formal, legal basis.

The king took no further action, probably aware that a dissolution of the Union was imminent, and the Swedish politicians did nothing, probably believing that this was another Norwegian political retreat.

He knew that the Norwegian people, after months of well-directed information in a unanimous press, was united in a way that is extremely rare in a democracy.

Prince Carl of Denmark became King Haakon VII of Norway after a new referendum had given the monarchy proponents approximately 79% of the votes cast.

In social policy, Michelsen's time as prime minister saw the passage of the 1906 Law on Central and Local Government Contributions to Unemployment Funds, which introduced voluntary insurance.