Fukuda has struggled to lead a coalition government beset by disagreements [AFP]

Fukuda made the surprise announcement on Monday evening at a news conference.

His term comes to an end less than a year after he took office.

"If we are to prioritise the people's livelihoods, there cannot be a political vacuum from political bargaining, or a lapse in policies. We need a new team to carry out policies," Fukuda said.

Fukuda has struggled to cope with a divided parliament, where opposition parties control the upper house and are able to delay legislation.

Coalition differences

Tomohiko Taniguchi, a political analyst in Tokyo, said Fukuda had "exhausted his political capital".

"The extraordinary session of the Japanese parliament is due open in two weeks. That session is going to have to cover many miles in terms of passing the legislation to support the coalition," he aid.

"Mr Fukuda must have thought that [he could not] spearhead the coalition government successfully to pass the legislation."

There had been speculation that Fukuda could be replaced in the run-up to a general election, which must be held by September 2009.

His resignation does not automatically mean an election.  

The Liberal Democratic Party, Fukuda's party, now has to choose a new leader and aim to win the confidence of parliament's lower house if it wants to carry on leading Japan's coalition government.

Fukuda's resignation would have a negative effect on the electorate, Taniguchi said.

"This has given the voters a tremendous sense of deja vu following the similar resignation conducted by the previous prime minister [Shinzo Abe]," he said.

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