Mr Abdullah has said his party faces great challenges
Malaysia's king has accepted the resignation of Prime Minister Abdullah Badawi, paving the way for his deputy Najib Razak to take over.
Mr Abdullah had been under pressure to resign since his Umno party suffered its worst ever poll results a year ago.
The party, in power since independence in 1957, faces internal divisions as well as a strong opposition challenge.
Mr Najib has already taken over as Umno leader, and is due to become prime minister on Friday.
Correspondents say Abdullah Badawi will be remembered for allowing more public freedom than his predecessor, Mahathir Mohamad.
But he was seen as failing to fulfil his promises to eradicate corruption, reform the judiciary and strengthen the police and civil service.
Warning to party
Last week, Mr Abdullah gave a strongly worded warning to the party congress.
He said Umno (the United Malays National Organisation) would perish unless it stopped suppressing dissent, jailing opponents and discriminating against Malaysia's minority Chinese and Indian communities.
Mr Najib told the BBC last year he would do more to address the grievances of minority groups.
Anger has been growing over laws that favour the Malay majority in business and education.
In the general election of last March, the ruling coalition lost its two-thirds majority in parliament.
However it did get 139 MPs in the 222-seat body, giving it a simple majority.
Mr Najib is expected to take over as prime minister on Friday.
He has described allegations concerning the murder of a Mongolian woman, Altantuya Shaariibuu, as "malicious baseless lies".
Two policemen who used to be in his protection team are on trial for the killing of the 28-year-old, while one of Mr Najib's associates admitted having an affair with the woman.