Spanish Prime Minister Jose Luis Rodriguez Zapatero, plunging in popularity as he fights an economic crisis, announced on Saturday he will not stand as a candidate for his Socialist Party in 2012 elections.
"I will not be a candidate in the next general elections," he said in a televised speech to the party's federal assembly in Madrid. "Thank you for your respect and your affection."
The Prime Minister called on the Socialist Party "to begin the process of holding primaries" to nominate a new person to lead the party in the next general elections.
He said that when he was first elected in 2004 he had already intended to remain head of government for only two terms and that this idea has not changed.
"I had thought about this seven years ago. Two terms is enough," he said.
He said had now made a "firm decision" which was the "most advisable" for the party and also for his own family.
The announcement comes ahead of regional and municipal elections in May in which the Socialist Party (PSOE) is expected to suffer heavy losses.
It also follows months of speculation that the 50-year-old Zapatero might step down in favour of his deputy Prime Minister Alfredo Perez Rubalcaba, 59, one of the most powerful figures in the government.
Zapatero had said last December that he had made a decision on whether to run in the elections.
He said on Saturday did not want to "prolong the unnecessary speculation" and instead "end the uncertainty" over his candidacy.
The Socialist Party has slumped in the opinion polls against the conservative opposition Popular Party of Mariano Rajoy as Zapatero attempts to push through painful austerity measures and labour market reforms to trim the public deficit.
The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of the once booming property market.
The economy shrank 0.1 percent in 2010 and the unemployment rate ended the year at 20.33 percent, the highest level in industrialised countries.
The government is seeking to reassure markets worried that its public deficit is unsustainably high and that the country could follow Greece and Ireland in seeking a debt bailout.
The Bank of Spain warned on Wednesday of slower-than-expected growth ahead and predicted the country would miss its key public deficit targets in 2011 and next.
Zapatero first took office in a surprise election win over Rajoy on March 14, 2004, just three days after the Madrid train bombings which killed 191 people.
He drew support from many Spaniards who accused the conservatives of attempting a cover-up by insisting the Basque separatist group ETA was to blame even though evidence pointed to Islamic extremists angered by Madrid's role in Iraq.
The former lawyer was re-elected in March 2008 after campaigning as the face of the modern, progressive Spain that his government had helped to create and which he said would be threatened if Rajoy won.
But with 169 seats in Spain's 350-member Assembly, Zapatero's Socialists are seven seats short of a majority and have to pass legislation on a vote-by-vote basis.
The Prime Minister last October announced the most sweeping Cabinet reshuffle since he came to office.