Iraqi President Barham Salih will begin consultations to choose a new candidate for prime minister after Mohammed Allawi withdrew from the race after failing to get parliament to vote on his cabinet team, deepening the country's political crisis.
Mr Salih will choose a candidate within 15 days, Iraq's state news agency said late on Sunday.
In a tweet earlier that evening, Mr Allawi accused rival political parties of blocking him.
“I submitted a letter to the President of the Republic, in which he apologised for assigning me to form the government," he said. "I was in front of this equation, the position of prime minister in exchange for lack of honesty with my people and continuing the position at the expense of their suffering.
“The choice was simple and clear, to be with my patient people, especially when I saw that some political parties are not serious about reform and fulfilling their promises to the people, and put obstacles in the way of the birth of an independent government working for the country."
The move has deepened the political crisis in Iraq, where mass protests and government deadlock are delaying the country's recovery from years of war.
Hours earlier, Iraq's Parliament failed to approve Mr Allawi's Cabinet for the second time in a week due to a lack of quorum. He needed a majority of the 329 MPs to pass his government.
Political parties had until Monday to break the stalemate otherwise Mr Salih was constitutionally bound to designate a replacement to end the impasse.
Mr Allawi's appointment was meant to ease tension after Prime Minister Adel Abdul Mahdi resigned in November amid the nationwide unrest and a bloody police crackdown.
But anti-government protesters opposed Mr Allawi as they consider him to be part of a corrupt political elite against which they have been rallying.
Iraq could end up without a prime minister if Mr Abdul Mahdi, who stayed as caretaker leader, also quits on Monday.
Security forces and powerful militia groups have fatally shot hundreds of mostly unarmed demonstrators since protests broke out in October.
More than 500 people have been killed in the protests that have swept across the capital Baghdad and the south of the country.
Demonstrators in Baghdad's Tahrir Square on Sunday morning demanded that Mr Allawi withdraw his nomination.
Security forces killed one person and wounded 24 at an anti-government protest in Baghdad, a police source said.