Palestinian prime minister Salam Fayyad resigned on Saturday after a weeks-long falling out with president Mahmud Abbas, despite US efforts for him to stay on.
"Fayyad met Abbas for half an hour in the president's headquarters in Ramallah in the West Bank and officially handed him his written resignation," a Palestinian official told AFP.
Abbas tasked Fayyad with the role of caretaker for the current government until a new prime minister is appointed, another official said.
The two men have been at loggerheads amid mounting criticism of Fayyad's economic policies by Abbas's ruling Fatah movement, but Washington had lobbied hard for the 61-year-old, US-educated economist to stay on.
Late on Friday, US Secretary of State John Kerry telephoned Abbas to press him to find common ground with his prime minister, Palestinian officials said.
Following his resignation Washington hailed Fayyad as a "strong partner".
"We recognize the important roles played by both president Abbas and prime minister Fayyad, and appreciate both of their efforts as we and others work to support establishment of a viable, independent Palestinian state," said National Security Council spokeswoman Caitlin Hayden.
"Prime Minister Fayyad has been a strong partner to the international community and a leader in promoting economic growth, state-building and security for the Palestinian people. We look to all Palestinian leaders to support these efforts."
In Canada, Foreign Minister John Baird said he was "saddened and deeply disappointed" about Fayyad's decision to leave his post.
Hailing Fayyad as a "trusted and dedicated interlocutor and friend of Canada", Baird expressed hope that he will "continue to advance the cause of peace and continue to work to improve the lives of the Palestinian people".
Rumours that Fayyad would either resign or be told to step down by Abbas have been rife in recent weeks after longstanding differences between the two leaders came to a head over the finance portfolio.
Finance minister Nabil Qassis announced on March 2 that he was standing down. Fayyad agreed to the resignation but Abbas, who was abroad at the time, rejected it.
A senior Palestinian official said Fayyad had had his letter of resignation prepared since March 23 but put off submitting it because of a visit to the region by US President Barack Obama and Abbas's overseas trips.
Fayyad held the finance portfolio as well as the premiership before Qassis's appointment in May 2012.
A meeting planned for Thursday at which Fayyad reportedly intended to hand in his resignation was postponed after Washington insisted that to the best of its knowledge the prime minister was "sticking around".
Last week, the Fatah Revolutionary Council for the first time openly criticised the Fayyad government's economic policies.
The rival Hamas movement, which rules the Gaza Strip, said the resignation was a result of "divisions within Fatah".
"Fayyad left the government after riddling our people with debt and Fatah must assume responsibility because it imposed him from the start," Hamas spokesman Sami Abu Zuhri told AFP.
He said the departure of Fayyad, who is deeply unpopular with Hamas, was unrelated to the long-stalled talks on a reconciliation between the two movements and the formation of a unity government.
Abbas's Palestinian Authority is in financial crisis, partly as a result of non-disbursement of promised foreign funding, although the US Congress quietly unblocked $500 million (382 million euros) in aid last month.
The international community credits Fayyad with building a sound institutional framework for the Palestinian Authority in the areas of the occupied West Bank under its control.
His resignation could hamper implementation of an agreement with Israel that Kerry announced during a visit this week to "promote economic development in the West Bank".
An Israeli government official, contacted by AFP, declined to comment on the resignation.