Mr Abdullah said Umno faced "a life and death situation"
The outgoing Malaysian prime minister has called for the main ruling party to "come to its senses and reform", to fight its plunging popularity.
Abdullah Badawi said Umno would perish if it continued to silence critics, jail opponents and discriminate against minority Chinese and Indian races.
His former deputy, Najib Razak, has succeeded Mr Abdullah as Umno leader, and is expected to take over as PM.
Umno is central to the ruling National Front coalition, in power since 1957.
But Abdullah Badawi came under strong pressure to stand down after leading the party last year to its worst ever election performance, ceding control of five of Malaysia's 13 states to the opposition.
Abdullah Badawi gave a brutally blunt final speech to Umno party members at its general assembly.
"We must come to our senses," he warned, blaming corruption and complacency for the party's flagging fortunes.
"Umno faces a life and death situation - one that concerns our future and survival," he said.
Najib Razak is expected to take over as prime minister next week
Umno has been in power since Malaysian independence 52 years ago.
The BBC's Robin Brant in Kuala Lumpur says it is an organisation that permeates every level of society, but last year's poor election result forced Mr Abdullah to agree to leave office early.
Najib Razak was formally declared Umno president on Thursday - replacing Mr Abdullah.
He contested the post unopposed in what analysts say was a carefully choreographed power transition aimed at reversing the party's poor popularity.
Mr Najib is expected to be sworn in as the new prime minister next week.
His appointment comes amid a worsening economic situation.
Malaysia is heavily dependent on its exports, which are expected to drop by a quarter this year. Unemployment could double as factories lay people off.