The decision was announced after the country’s military chief went on TV on Sunday to call for him to quit. In his TV appeal, General Williams Kaliman said: “After analysing the situation of internal conflict, we ask the president to resign, allowing peace to be restored and stability to be maintained for the good of our Bolivia.” He also warned Bolivians not to resort to violence.
Mr Morales has seen weeks of anti-government protests after his election victory last month was disputed.
The Organization of American States later discovered “clear manipulation” at the polls.
This came after concerns were raised about a day-long gap in reporting results from the poll, before there was a spike in votes for Mr Morales.
Mr Morales, who had been president since 2006, had promised a fresh election.
Mr Morales said in televised comments that he would submit his resignation letter to help restore stability, though he aimed barbs at what he called a “civic coup.”
The OAS report said the October vote should be annulled after it had found “clear manipulations” of the voting system that called into question Morales’ win, with a lead of just over 10 points over main rival Carlos Mesa.
There had also been signs that Mr Morales’ support was waning fast after several of his allies resigned, including Mining Minister Cesar Navarro and Chamber of Deputies President Victor Borda, who belongs to Morales’ party.
They both cited fear for the safety of their families as the reason for stepping down.
READ MORE: Bolivia news: Why has the Bolivian president resigned?
Juan Carlos Huarachi, leader of the Bolivian Workers’ Centre, a powerful pro-government union, said Mr Morales should stand down if that would help end recent violence.
He said: “If it means resigning to bring peace to the Bolivia people, then Mr. President we should do it.”
In recent days police forces were also seen joining anti-government protests, while the military said it would not “confront the people” over the issue after a weeks-long standoff.
The attorney general’s office also announced it had ordered an investigation with the aim of prosecuting the members of the electoral body and others responsible for the irregularities.
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When questioned about whether he would be a candidate in the new election, Mr Morales told a local radio station “candidacies must be secondary; what comes first is to pacify Bolivia,” adding he had a constitutional duty to finish his term.
Mr Mesa said Mr Morales and Vice President Alvaro Garcia Linera should not preside over the electoral process or be candidates.
“If you have an iota of patriotism, you should step aside,” Mesa said in a news conference.
Mr Morales, who came to power in 2006 as Bolivia’s first indigenous leader, had defended his election win but said he would adhere to the findings of the OAS audit.
“The manipulations to the computer systems are of such magnitude that they must be deeply investigated by the Bolivian State to get to the bottom of and assign responsibility in this serious case,” the preliminary OAS report said.
“The first round of the elections held on October 20 must be annulled and the electoral process must begin again,” the OAS added in a separate statement.
Local media reported shots were fired at vehicles carrying a group of miners on their way to La Paz from the southern mining region of Potosi earlier on Sunday, causing several injuries.
The official government human rights body issued a statement condemning the attack.