Senator Dodd was expected to face a tough re-election battle
US Senator Chris Dodd, a key ally of President Barack Obama, has announced that he will not seek re-election in November.
In a statement, Mr Obama thanked him for his service and said his leadership on Capitol Hill would be missed.
Mr Dodd's move follows the decision by fellow Democratic Senator Byron Dorgan not to stand again.
The Democrats have 60 Senate votes, just enough to overcome Republican efforts to block legislation.
The balance of power could change after November's elections, when a third of the 100 Senate seats will be contested.
Voters will also elect all 435 members of the House of Representatives.
Senator Dodd, who chairs the Senate banking committee, made the announcement that he would not be seeking re-election for a sixth term outside his home in East Haddam, in the state of Connecticut.
"I have been a Connecticut senator for 30 years. I'm very proud of the job I've done and the results delivered," Mr Dodd told reporters.
"But none of us is irreplaceable. None of us are indispensable. And those who think otherwise are dangerous," he added.
"In the long sweep of American history there are moments for each elected public official to step aside and let someone else step up. This is my moment to step aside."
The 65-year-old Connecticut senator has been a key figure in efforts to deal with the financial crisis, and the healthcare debate.
But Mr Dodd, a former presidential hopeful, has been increasingly embattled since 2008 amid criticisms over a loan he received from a subprime lender.
Opinion polls have suggested that he would not win re-election in November and Mr Dodd appeared to acknowledge this as he admitted he found himself in the "toughest political shape of my career".
He said personal challenges, including battling with prostate cancer and the death of his sister over the past year, had also influenced his decision.
Correspondents say his decision to retire will allow the Democratic Party to field a stronger candidate.
But Senator Dorgan's decision not to seek re-election in North Dakota is being seen as a big blow to the Democrats.
The Democrats, with the help of two independents, currently have a 60 to 40 seat majority in the Senate - the threshold number that allows them to override Republican attempts to hold up legislation.
The party in power in the White House tends to lose congressional seats in mid-term elections.