The Vatican says it expects a new Pope to be elected before the end of March, ahead of Easter.
Papal resignations are not unknown, but this is the first in the modern era.
The BBC’s Alan Johnston in Rome says the news has come “out of the blue”, and that there was no speculation whatsoever about the move in recent days.
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At this age my brother wants more rest”
Georg RatzingerPope’s brother
Italian Prime Minister Mario Monti is quoted as saying he was “greatly shaken by this unexpected news”.
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”.
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.
Talking from his home in Regensburg in Germany, Georg Ratzinger said his brother was having increasing difficulty walking and that his resignation was part of a “natural process”.
He added: “His age is weighing on him. At this age my brother wants more rest.”
‘Incapacity’At 78, Cardinal Joseph Ratzinger was one of the oldest new popes in history when elected.
He became Pope in April 2005 following John Paul II‘s death.
He took the helm as one of the fiercest storms the Catholic Church has faced in decades – the scandal of child sex abuse by priests – was breaking.