Mahathir said in a two-line statement that he had informed the country's king of his resignation at on Monday.
Mahathir also reportedly resigned from his own party, Parti Pribumi Bersatu Malaysia, according to Reuters news agency, citing three sources. Mahathir's party also announced that it was quitting the ruling government coalition, Pakatan Harapan (Alliance of Hope), casting doubt on the future of the partnership.
Mahathir's decision follows a weekend of political wrangling, after it was reported on Sunday night that his party was planning to form a new government that would exclude his anointed successor, Anwar Ibrahim.
The king accepted Mahathir's resignation after meeting with him later on Monday, Chief Secretary Mohd Zuki Ali said in a statement.
"However, His Highness has given his assent to appoint Mahathir Mohamad as interim prime minister, while waiting for the appointment of the new prime minister. Hence until then, (Mahathir) will manage the country's affairs until a new prime minister and cabinet are appointed," Mohd Zuki said.
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