Grivas and the National Guard reacted to Turkish pressure by initiating patrols into the Turkish Cypriot enclaves. Patrols surrounded two villages, Ayios Theodhoros and Kophinou, about twenty-five kilometers southwest of Larnaca, and began sending in heavily armed patrols. Fighting broke out, and by the time the Guard withdrew, twenty-six Turkish Cypriots had been killed. Turkey issued an ultimatum and threatened to intervene in force to protect Turkish Cypriots. To back up their demands, the Turks massed troops on the Thracian border separating Greece and Turkey and began assembling an amphibious invasion force. The ultimatum's conditions included the expulsion of Grivas from Cyprus, removal of Greek troops from Cyprus, payment of indemnity for the casualties at Ayios Theodhoros and Kophinou, cessation of pressure on the Turkish Cypriot community, and the disbanding of the National Guard.

Grivas resigned as commander of the Greek Cypriot forces on November 20, 1967, and left the island, but the Turks did not reduce their readiness posture, and the dangerous situation of two NATO nations on the threshold of war with each other continued. President Johnson dispatched Cyrus R. Vance as his special envoy to Turkey, Greece, and Cyprus. Vance arrived in Ankara in late November and began ten days of negotiations that defused the situation. Greece agreed to withdraw its forces on Cyprus except for the contingent allowed by the 1960 treaties, provided that Turkey did the same and also dismounted its invasion force. Turkey agreed, and the crisis passed. During December 1967 and early January 1968, about 10,000 Greek troops were withdrawn. Makarios did not disband the National Guard, however, something he came to regret when it rebelled against him in 1974.

Seizing the opportune moment after the crisis had ended, in late December 1967 Turkish Cypriot leaders announced the establishment of a "transitional administration" to govern their community's affairs "until such time as the provisions of the Constitution of 1960 have been fully implemented." The body's president was Fazil Küçük, vice-president of the republic; the body's vice-president was Rauf Denktas, president of the Turkish Cypriot Communal Chamber. Nineteen governing articles, called the Basic Principles, were announced, and the provisional administration organized itself along lines that were similar to a cabinet. The provisional administration also formed a legislative assembly composed of the Turkish Cypriot members-in-absentia of the republic's House of Representatives and the members of the Turkish Cypriot Communal Chamber. The provisional administration did not state that the Communal Chamber was being abolished. Nor did it seek recognition as a government. Such actions would have been contrary to the provisions of the constitution and the Zurich-London agreements, and the Turkish Cypriots as well as the Turks scrupulously avoided any such abrogation. The Greek Cypriots immediately concluded that the formation of governing bodies was in preparation for partition. U Thant was also critical of the new organizations.