The unexpected development - the first papal resignation in nearly 600 years - surprised governments, Vatican-watchers and even his closest aides.
The Vatican says it expects a new Pope to be elected before Easter.
Cardinal Joseph Ratzinger became Pope in 2005 after John Paul II's death.
The BBC's David Willey in Rome says the move has come as a shock, but in theory, there has never been anything stopping Pope Benedict or any of his predecessors from stepping aside.
Under Canon Law, the only conditions for the validity of such a resignation are that it be made freely and be properly published.
A Vatican spokesman, Father Federico Lombardi, said that even the Pope's closest aides did not know what he was planning to do and were left "incredulous". He added that the decision showed "great courage" and "determination".
Italian Prime Minister Mario Monti is quoted as saying he was "greatly shaken by this unexpected news".
The brother of the German-born Pope said the pontiff had been advised by his doctor not to take any more transatlantic trips and had been considering stepping down for months.
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