|New Zealand's Prime Minister John Key addresses the audience during a meeting at the APEC (Asia-Pacific Economic Cooperation) Ceo Summit in Lima, Peru, November 19, 2016 REUTERS/Paco Chuquiure
Key said he had no immediate future plans, but told reporters he would stay in parliament long enough for his center-right National Party to avoid a by-election for his seat.
"There is no way I could have served out a full fourth term," Key said at his weekly press conference in Wellington, citing family reasons for his departure.
The National Party caucus will hold a meeting on December 12 to decide the new party leader and prime minister.
Key said he would vote for his deputy and finance minister Bill English to take over, if he decided to stand.
English, a political veteran who previously worked on the family farm and as a policy analyst at the Treasury Department, would likely continue with many of Key's core policies, analysts said. National elections are not expected until late 2017.
Key, a multi-millionaire former foreign exchange dealer who worked at firms including Merrill Lynch, won office for the National Party in 2008, ending the nine-year rule of Labour’s Helen Clark. English briefly served as leader of the National Party previously, trying and failing to unseat Clark in 2002.
Together Key and English won praise for their stewardship of the NZ$240 billion (US$170 billion) economy in the aftermath of the global financial crisis and two devastating earthquakes near Christchurch.
In October, New Zealand reported its second straight budget surplus as solid economic growth boosted tax receipts.
Key is stepping down with his party in a dominant position in New Zealand's German-style mixed member proportional representation parliament.
A Roy Morgan poll last week showed support for the National Party up 1.5 percent to 49.5 percent, clearly ahead of the Labour/Greens alliance, at 37.5 percent support.
Bryce Edwards, lecturer in politics at the University of Otago, said the resignation came as a shock given Key's personal popularity.
"As a top trader he knows you sell stocks when they are at their highs, not lows," Edwards told Reuters. "So he's managed to leave politics on a high note and will go down in history as a popular politician."
The absence of Key from New Zealand politics raises questions about the ability of the National Party to retain its popularity at the next election, Edwards added.
The New Zealand dollar fell around a fifth of a US cent on the news to US$0.7084.
"One issue to be mindful of is that we've had political stability in New Zealand now for a number of years," said Philip Borkin, a senior economist at ANZ. "That may not change significantly but it does add a little bit of uncertainty to the political environment that we're used to."