The former army chief, who seized power in a 1999 coup, announced the move in a lengthy televised address. He rejected the charges against him but said he wanted to spare Pakistan a damaging battle with the ruling coalition.

"After viewing the situation and consulting legal advisers and political allies, with their advice I have decided to resign," Musharraf, wearing a sober suit and tie, said near the end of his one-hour address.

"I leave my future in the hands of the people."

Celebrations erupted across the country after Musharraf bowed out, yet it was far from certain what would come next for a nation whose role in the "war on terror" has been increasingly questioned by Washington.

The White House said US President George W. Bush thanked Musharraf for his commitment against extremism and he would keep working with Pakistan's government.

Musharraf's decision to quit came after the coalition said it was ready to press ahead with impeachment as early as Tuesday on charges that reportedly included violating the constitution.

It was not known if he had concluded a deal that would save him from either going into exile or from facing prosecution in the days ahead. The coalition made no comment on his fate.

Coalition leaders Asif Ali Zardari, the widower of slain ex-premier Benazir Bhutto, and Nawaz Sharif, who was ousted by Musharraf in 1999, were shown shaking hands and smiling after his speech but gave no immediate reaction.

Pakistani Prime Minister Yousuf Gilani said it was a "historic day."

"Today we have buried dictatorship for ever," Gilani said in a special sitting of parliament. Pakistani stocks jumped more than four percent on the news of Musharraf's resignation.

Musharraf, 65, appealed for reconciliation after his departure.

"If we continue with the politics of confrontation, we will not save the country," he said. "People will never pardon this government if they fail to do so."

Several close aides said Musharraf was not set to go into exile as several of Pakistan's former leaders have done. "He is not going anywhere," one aide said.

Senate chairman Mohammedmian Soomro will act as caretaker president until an election, which is expected in the next few weeks.

Musharraf's troubles began last year when he sacked senior judges who opposed him, clearing the way for his re-election while still holding a dual role as head of the country's powerful armed forces.

The move set off mass protests in the streets that built into a national crisis which saw Musharraf declare a state of emergency in November.

But he was compelled to quit as army chief within weeks, and after the December assassination of Bhutto, voters handed his opponents a massive victory in general elections in February.

"After the martyrdom of my mother I said that democracy was the best revenge -- and today it was proved true," said Bhutto's 19-year-old son, Bilawal.

In Musharraf's speech, however, he strongly defended every aspect of his time in power -- even the coup nine years ago.

He said he had improved a tottering economy, helped establish law and order, fostered democracy and burnished the country's international stature.

"On the map of the world Pakistan is now an important country, by the grace of Allah," Musharraf said.

The president was also backed into a corner by the resurgence of Islamic militants in the tribal areas along Pakistan's border with Afghanistan, who launched a massive wave of attacks last year that left more than 1,000 dead.

Musharraf himself survived three assassination attempts and went from being a backer of the Taliban to a close US ally after the September 11, 2001 attacks.

Cheering crowds poured into the streets in major cities across the country of 170 million people -- the second most populous Islamic nation and the only one with an atom bomb -- after he stepped down.

World leaders from Britain to Japan urged stability and unity in Pakistan, and called on Islamabad to continue its fight against extremism.

"President Bush is committed to a strong Pakistan that continues its efforts to strengthen democracy and fight terror," US National Security Council spokesman Gordon Johndroe said in a statement.

US Secretary of State Condoleezza Rice called Musharraf in a statement "a friend to the United States and one of the world's most committed partners in the war against terrorism and extremism."

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