King Juan Carlos of Spain is abdicating, Prime Minister Mariano Rajoy has announced.
Juan Carlos, who is 76, has ruled since 1975, taking over after the death of dictator Francisco Franco.
The king's son, Crown Prince Felipe, 45, will take over the throne.
For much of his reign, Juan Carlos was seen as one of the world's most popular monarchs, but recently many Spaniards have lost confidence in him.
His reputation has been tarnished by a long-running corruption investigation into his daughter and her husband.
Support for the king fell further when it was discovered he had been on a lavish elephant hunting trip to Botswana in April 2012, in the middle of Spain's financial crisis.
"His Majesty King Juan Carlos has just informed me of his desire to renounce the throne and begin the process of succession," Mr Rajoy said in a short statement.
He gave no reason for the decision, saying the monarch himself would explain, but Juan Carlos' health is failing and he has had a number of hip operations in recent years.
Spain does not have a precise law regulating abdication and royal succession, and Mr Rajoy said ministers would hold a special meeting to discuss the process by which the prince would take over as Felipe VI.
The prime minister said Juan Carlos had been a "tireless defender of our interests".
"I'm convinced this is the best moment for change," he added.
Analysis: Ignacio de los Reyes, Spain
Juan Carlos is handing over the crown to Prince Felipe of Asturias and his wife, who have the highest approval ratings in the royal family.
But the main concern is whether they will be able to save a damaged institution.
On social networks, people are already asking whether it is time for Spain to become a republic.
Some parties are calling for constitutional reform and a popular vote to pave the way for this change.
But since the return of democracy four decades ago, the two main parties in Congress have remained loyal to the monarchy.
The main reaction from political leaders so far has been of gratitude for the king's service.
An online poll at El Mundo newspaper website showed 85% of support for the monarch's decision.
Pivotal roleWhen Juan Carlos took over from General Franco, he became Spain's first crowned head of state for 44 years.
But he soon ignored Franco's supporters, who wanted an extension to autocratic rule, and ushered in a new system of parliamentary monarchy.
As the years went on the king involved himself less in day-to-day politics, and became more of a figurehead.
He has been credited as a stabilising force for independence-minded areas such as Catalonia and the Basque region, and he also helped defuse an attempted coup in 1981.
Until a few years ago his popularity was high, but the hunting trip and corruption allegations involving his youngest daughter, Cristina, and her husband Inaki Urdangarin, led to calls for him to step aside.
The king's son and successor, Felipe, appears to have been untarnished by the scandal.
Felipe and his wife - former television presenter Princess Letizia - have recently taken on more important roles in ceremonial events.
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The king gave a rare interview in Jan 2013 on the eve of his 75th birthday
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