"A NATO member, Turkey’s recent moves toward one-man rule and away from constitutional secularism are putting pressure on the alliance," the report stated.
The firm argued that the strong-man rule has become more appealing because of economic and demographic changes in the country.
Davutoglu said the resignation was not his choice but a “necessity” because of lacking unity in the AKP leadership. Media speculated that Erdogan could replace Davutoglu with his son-in-law Berat Albayrak.
The report continued that both the European Union and NATO find recent developments in Ankara troubling.
"Given the centrality of Turkey in continental affairs, the machinations of Erdogan extend far beyond the political halls of Ankara," the group said.
Davutoglu was appointed as the country's Prime Minister in 2014. His relations with Erdogan deteriorated because of the president’s wish to gain more power by switching to a presidential system as well as different stances on freedom of speech in Turkey, according to reports.