The former strongman signed his resignation letter, surrounded by his party members at his official residence in the capital, television footage showed. 

Rajapaksa's resignation is likely to bring to an end a nearly two-month-long power struggle and will pave the way for a new government to be established under President Maithripala Sirisena.

Sri Lanka plunged into a political turmoil when Sirisena abruptly sacked Prime Minister Ranil Wickremesinghe on October 26 and replaced him with former President Rajapaksa. When Sirisena's decision was contested, he dissolved Parliament and called for a snap parliamentary election in January.

Wickremesinghe is now expected to return to office on Sunday. "The President has agreed to swear in Ranil Wickremesinghe as Prime Minister tomorrow at 10 am," his United National Party's (UNP) spokesman Harin Fernando told the BBC.

Fernando said this would end the political deadlock and noted that the country and its economy had suffered a "huge damage" since the crisis began 50 days ago.

The ministers of the new Cabinet will take oath on Monday, the Colombo Telegraph reported citing UNP sources.

Rajapaksa will make a special statement on Sunday explaining the reasons for his decision to step down, the daily said.

His son Namal said his father had quit to ensure national stability.

Shehan Semasinghe, a lawmaker from Rajapaka's Sri Lanka Podujana Peramuna (SLPP) party, said the leader and his group will function as a strong opposition at the Parliament and will continue their call for a parliamentary election to end the political instability.

Rajapaksa decided to resign from his premiership on Friday after the Supreme Court continued a suspension order on him and his Cabinet from continuing in office.

It had also ruled as "unconstitutional" Sirisena's decision to dissolve Parliament and conduct a snap parliamentary election.

Amid the crisis, Sri Lankan Parliament had earlier this week passed a vote of confidence in Wickremesinghe as Prime Minister. His party and its allies have a simple majority in Parliament and have argued from the beginning that President Sirisena's actions were unconstitutional.