Under his reign as leader of the SPD, Schulz has seen the party support decrease dramatically with a recent poll, taken by the firm INSA, putting the social democrats only a single percentage point above the populist anti-mass migration Alternative for Germany (AfD).
Many within the SPD harbor misgivings about sharing power with Merkel, believing the party should rebuild in opposition after suffering its worst result in last September's election since Germany became a federal republic in 1949.
"It's a hard job at times, but I retire without bitterness and resentment", Schulz said.
He also said Andrea Nahles, the party's parliamentary leader, would take over as the SPD's chairwoman.
"With my resignation from office and decision not to participate in the government, I want to bring the personnel debate in the SPD to an end so that the members can really concentrate on what is in the coalition agreement", Schulz told reporters.
Commonwealth Games organisers 'gutted' after 14000 incorrect tickets sent
He also dismissed the suggestion the error called into question GOLDOC's organisation less than two months before the Games start. Kirsty Gilmour expects stiff competition as she bids for a second Commonwealth Games medal in April.
But three regional associations led by the powerful Berlin local party have objected to plans to install Ms Nahles as interim leader.
Hoping to contain the bitter infighting inside the party, the SPD has nominated Nahles to replace Schulz, pending approval on April 22 at a special party conference in the western city of Wiesbaden.
Schulz's announcement came after a turbulent week for him.
The party has been forced to act swiftly to fill the vacancy left by Schulz as it prepares for a make-or-break vote by the more than 460,000 members on whether to accept or reject the coalition deal with Chancellor Angela Merkel's conservative bloc.
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Kagiso Rabada waves Shikhar Dhawan 'goodbye', fined 15% of match fee
His dismissal prompted an aggressive send-off from Rabada, whereas Dhawan walked away without responding. His record has earlier lead to the bowler's suspension from Trent Bridge Test against England.
Schulz has been troubled with criticism from within the SPD, especially the youth branch of the party which has been fervently against a coalition deal with Merkel.
Those opposed to any deal with Mrs Merkel include a new group within the SPD calling itself NoGroKo (no grand coalition).
The coalition deal envisages stronger Franco-German cooperation, allocating budget funds for economic stabilization in Europe, increased German contributions to the EU budget, and transforming the ESM bailout fund into a European Monetary Fund.
Results of the SPD ballot are due on March 4. That would leave only an unprecedented minority government under Merkel or a new election as options.
Nahles said that she would start campaigning at the weekend for members to approve the coalition agreement with Merkel.
Actress Minnie Driver quits her Oxfam role over charity sex allegations
The Charity Commission said it had contacted Save The Children to establish if it had records of Ms Miller's complaints. Oxfam has denied covering up the scandal, which triggered the resignation of its deputy chief executive on Monday.