The ANC's Secretary General Gwede Mantashe said the move had followed "a long and difficult discussion".
He said Mr Mbeki, who has ruled for more than a decade, "did not display shock" at the decision and had agreed to participate "in the process and the formalities".
The decision had been taken for "stability and for a peaceful and prosperous South Africa", Mr Mantashe told a news conference.
The ANC secretary general said this was not punishment for Thabo Mbeki, adding that the president would be given the chance to continue his role as mediator in Zimbabwe.
At the same time, ANC cabinet members are being urged to remain in government to ensure continued stability.
Political interference
The BBC's Peter Biles in Pretoria says this dramatic decision will fundamentally change South Africa's political landscape.
Mr Mbeki fired Jacob Zuma as deputy president in 2005 after his financial adviser was found guilty of soliciting a bribe on his behalf.
But Mr Zuma returned to the political stage to topple his rival as ANC leader in bitterly contested elections last year.
Earlier this month a High Court judge dismissed corruption and other charges against Mr Zuma, saying there was evidence of political interference in the investigation.
In his ruling the judge said it appeared that Mr Mbeki had colluded with prosecutors against Jacob Zuma as part of the "titanic power struggle" within the ANC.
The accusation was strongly denied by Mr Mbeki.
Weakened position
Mr Mbeki, who has devoted his life to the ANC, succeeded Nelson Mandela as the party's president in 1997.
He became leader of South Africa in 1999 and won a second term in 2004.
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Thabo Mbeki's political career
Perhaps his biggest policy success has been South Africa's rapid economic growth since the end of apartheid and the rise of a black middle class - but to the anger of many, wealth is more unevenly distributed than ever before.
He has failed to convince the trade unions and the poorest South Africans that the government has acted in their interest - providing space for Mr Zuma to mobilise a powerful constituency.
Domestically, his government's handling of the HIV/Aids crisis and failure to stem violent crime in the country has weakened his hand.
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