Egyptian President Hosni Mubarak says he will not run for the presidency in the September elections, and has begun talks with political groups on reform.
Mubarak says he is keen on ending his 'service to the nation' of Egypt.
'I have exhausted my life' for Egypt, Mubarak said on Egyptian state TV.
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'I do not intend to run for another presidential term.'
Yet no sooner had Mubarak's speech gone live on Egyptian state TV, thousands of protesters in central Cairo began to chant 'leave, leave', and 'revolution until death', Al Jazeera reported.
Waleed Nassar, an Australian-Egyptian currently trapped in the port city of Alexandria by the violent protests, said resentment was high because Mubarak had never been expected to contest the September elections.
"He's pulled the wool over the country's eyes again," Nassar told SBS.
Al Jazeera broadcast pictures of rioting taking place in Alexandria. TV pictures showed tanks moving through the crowd as pro-Mubarak protesters reportedly clashed with those seeking a change of government.
Mr Nassar said his family had 'given up' on Australian officials helping them to escape the volatile nation, and were doing anything they could to reach Cairo and fly back home.
He said there would likely be further rioting as Egyptians digested Mubarak's announcement, given that he had ignored their demands he step down and leave immediately.
"I will die in Egypt," Mubarak told the nation.
Mubarak said demonstrations in Egypt stem from 'the exercise of right and expression' but that they had been 'manipulated and controlled by political forces.'
Egyptians were living painful days, he said
But he stressed the changes he had made in the last few days, and said Egyptians were being forced to 'choose between chaos and stability'
Mubarak said he had 'never sought power or influence.'
He says he has instructed the police to 'protect and save the citizens in absolute dignity and honour.'
A defiant Mubarak called on security forces, however, to clamp down on 'outlaws.'
In Tahrir Square in Cairo, TV pictures showed a tumultuous reaction to the resignation.
The statement came after more than 200,000 people in the largest demonstration yet, flooded Cairo's main square on Tuesday, heeding the call of opposition leaders for a "march of a million."
Egyptians came from all over the country to join what became the culmination of a week-long uprising aimed at removing the authoritarian ruler of the past three decades from power.
