King Jigme Singye Wangchuk of Bhutan has abdicated to make way for his son.
King Wangchuk gave up absolute power in 1998
The king made his announcement in a royal edict read out late on Thursday at a council of ministers meeting.
He had been in power for three decades and announced a year ago that he planned to step down in 2008. He did not say why he was going earlier.
Bhutan becomes a parliamentary democracy under a new constitution in 2008. It is not clear when Crown Prince Jigme Kesar Namgyal will be crowned.
The king's kasho, or royal edict, relinquishing office said: "I am stepping down as king of Bhutan."
The edict thanked the people, the clergy and the business community for their support for the king during his reign in the tiny and remote Himalayan kingdom.
King Wangchuk gave up absolute power in 1998 and has ruled since in conjunction with the government, an assembly and a royal advisory council.
He announced a year ago that he would step down and be succeeded by his son when the country holds its first national democratic elections in 2008.
Crown Prince Jigme Kesar Namgyal studied at Oxford before returning to Bhutan to assist his father at the peak of the Bhutanese military offensive against anti-Indian rebels from the state of Assam in December 2003.
Country is about 38,000 sq km (15,000 sq miles) - one sixth the size of the UK
Hereditary monarchy established in 1907
Only 6,000 tourists a year allowed to visit
Smoking is banned
First introduced TV in 1999
King Wangchuck has four wives, all of whom are sisters
Crown Prince Jigme Khesar Namgyel Wangchuck is 25 and unmarried
He will be the fifth king of Bhutan. A date for his coronation has yet to be announced.
"The prince needs enough experience and exposure in the art of governance, so the king has decided to step down earlier than planned," a member of the royal staff who did not wish to be named told the BBC over the phone.
When he made his announcement a year ago, the king said he would begin handing over responsibility to his son immediately.
In September 2006, officials said the 2008 polls would pave the way for a two-party system in Bhutan. The authorities say there will be no restrictions on who is allowed to vote.
A draft constitution currently provides for two houses of parliament - a 75-member national assembly and a 25-member national council - with the king as head of state.
Correspondents say the king likes to project the image of a simple lifestyle, preferring to work in a small log cabin above the capital while his fortress-like palace is used by his four wives, all of whom are sisters.