Kan appeared on national television to announce that he was resigning as the leader of the ruling Democratic Party, effectively ending his tenure as Prime Minister.
His exit paves the way for election of Japan's sixth Prime Minister in five years, as the country is struggling to come out from the devastation caused by March 11 earthquake which triggered a nuclear crisis.
"I resign as the party president effective today", Kyodo news agency quoted him as telling his party leaders. He was the first leader in Japan, not hailing from a well connected political family to don the premiership.
After taking office in June last year, the 64-year-old premier has struggled amid plunging ratings, a relentless power struggle within his party and a combative opposition controlling upper house stalling legislation.
Later he came under fire from his own party lawmakers for his perceived lack of leadership in dealing with the March disaster that claimed the lives of more than 15,000 people and triggered the world's worst nuclear crisis in 25 years.
The ruling Democratic party will vote on Monday to elect a new leader, who will become the next Prime Minister.
Former Foreign Minister Seiji Maehara is viewed as a frontrunner to replace Kan. Finance Minister Yoshihiko Noda and Trade Minister Banri Kaieda may also enter the fray.