Mr Hariri, who is a self-made billionaire in the construction industry, said in a CNN interview that his name would not figure in the consultation process to form a new administration, although he did not rule out returning to the job in the future.

A statement from President Lahoud said he had accepted the decision and would consult MPs about finding a new prime minister.

Mr Hariri said he had turned down the post because President Lahoud had engaged in what he called unconstitutional action in his dealings with parliament.

Emile Lahoud, a former army commander, took over as president last week saying he was determined to revive the economy and stamp out corruption.

A struggle for influence

A statement broadcast on Mr Hariri's own Future TV network said he decided "to decline the offer to form the government rather than govern by upholding a violation of the constitution".

Analysts say that Mr Hariri, who has been the dominant force in Lebanese politics in recent years, was angered by attempts by the new president to influence his choice of ministers.

Mr Hariri has tendered his resignation on previous occasions, but has always been persuaded to stay on.

Mr Hariri is credited with spearheading Lebanon's drive to rebuild after its long civil war.

Worries over the economy

His decision not to continue caused dismay in financial circles.

"A government without Hariri opens a whole can of worms because there is no obvious alternative. He has inspired confidence in foreigners and locals," an economist said.

However, his adminstration was also criticised for presiding over declining living standards, and a rise in corruption.

Correspondents say a leading contender for the post, which is reserved for a Sunni Muslim, is the former Prime Minister, Salim al-Hoss.

There has been no comment on the crisis so far from neighbouring Syria, which is the main power broker in Lebanon.

Mr Hariri's resignation also comes amidst heightening tension with Israel following the deaths of seven Israeli soldiers in southern Lebanon.