Pope Benedict XVI is to resign on February 28 due to his "deteriorating" health.
He will be the first head of the Roman Catholic Church to resign in almost 600 years, with his departure expected to leave the post vacant for around three weeks.
The 85-year-old German's resignation letter said: "After having repeatedly examined my conscience before God, I have come to the certainty that my strengths, due to an advanced age, are no longer suited to an adequate exercise of the Petrine ministry.
"I am well aware that this ministry, due to its essential spiritual nature, must be carried out not only with words and deeds, but no less with prayer and suffering.
"However, in today's world, subject to so many rapid changes and shaken by questions of deep relevance for the life of faith, in order to govern the bark of Saint Peter and proclaim the Gospel, both strength of mind and body are necessary, strength which in the last few months, has deteriorated in me to the extent that I have had to recognise my incapacity to adequately fulfil the ministry entrusted to me."
He will step down after almost eight years in the post, having been elected in April 2005.
Speaking at a hastily-arranged news conference, Vatican spokesman Federico Lombardi said: "The Pope caught us a bit by surprise.
"We should have a new pope for Easter."
He told reporters a conclave could be held within 15 or 20 days of the resignation - and insisted Pope Benedict was not stepping down because of any difficulties in the Papacy.
The Vatican has been keen to stress that the Pope has not stepped down due to any specific illness.
And while Mr Lombardi said his vigour had "sadly diminished in recent times", he praised the Pontiff's "humility and great honour".
Pope Benedict will now head to his Castel Gandolfo residence outside Rome, before returning to the city to live in a monastery of cloistered nuns on the Vatican hills.
The Pope's brother, Georg Ratzinger, said the Pontiff had been advised by his doctor not to take transatlantic trips for health reasons - and that he had been considering resigning for months.
He said his brother was having increasing difficulty walking and that his resignation was part of a "natural process".
"His age is weighing on him," the 89-year-old said of his 85-year-old brother. "At this age my brother wants more rest."
The last post on Pope Benedict XVI's Twitter page, sent on Sunday, said: "We must trust in the mighty power of God's mercy. We are all sinners, but His grace transforms us and makes us new."
Pope Benedict has championed Christianity's European roots and showed his conservatism by repeatedly stressing family values and fiercely opposing abortion, euthanasia and gay marriage.
He has looked increasingly weary in recent months and has often used a mobile platform to move around St Peter's Basilica during church services.
His next scheduled major public appearance will see him host a general audience at the Vatican on Wednesday.
Archbishop Vincent Nichols, the head of the Catholic Church in England and Wales, said: "Pope Benedict's announcement today has shocked and surprised everyone. Yet, on reflection, I am sure that many will recognise it to be a decision of great courage and characteristic clarity of mind and action.
"The Holy Father recognises the challenges facing the Church and that "strength of mind and body are necessary" for his tasks of governing the Church and proclaiming the Gospel. I salute his courage and his decision."
Cardinal Keith O'Brien, leader of the Catholic Church in Scotland, said: "Like many people throughout the world, I was shocked and saddened to hear of the decision by Pope Benedict XVI to resign.
"I know that his decision will have been considered most carefully and that it has come after much prayer and reflection."
Dr Rebecca Rist, an expert in the history of the Papacy from the University of Reading , said: "The cardinals will now have to elect a new Pope - perhaps someone from South America or Africa - areas of the world where the Church is growing in numbers.
"The new Pope will have huge global issues to prioritise - poverty, education, human rights, the environment - and not least the importance of faith and belief in an increasingly secularised Europe.
"Benedict is a distinguished theologian and will doubtless use his retirement to dedicate himself to further study."
Sky News Foreign Affairs Editor Tim Marshall said: "Seven years as Pope is not very long.
"Last time, there was a lot of speculation that it was time for the first black Pope. What Pope Benedict has done in recent years is to pack the ranks of the Vatican with lots of Europeans."
The last Pope to resign was Pope Gregory XII, who stepped down in 1415 in a deal to end the Great Western Schism among competing papal claimants.
There are several Papal contenders but no obvious front-runner to take over, which was also the case when Pope Benedict was elected Pontiff in 2005 after the death of Pope John Paul II.
Canadian Cardinal Marc Ouellet has been installed as favourite for the job.