The decision also comes after a disastrous result for Labour result in the local and European elections - so far, they have only polled 7.2% of the vote.
Mr Gilmore's hand was virtually forced after seven Labour TDs and a senator earlier tabled a vote of no confidence to be heard at the next parliamentary party meeting.
The motion was put forward by Ciara Conway, Dominic Hannigan, Michael McNamara, Ged Nash, Derek Nolan, Aodhán Ó Ríordáin and Arthur Spring, as well as senator John Gilroy.
It stated: "The Parliamentary Labour Party does not retain confidence in the party leader."
Mr Gilmore had also faced the prospect of being removed as party leader by the influential Central Council.
I am immensely proud of the courage shown by those members of the Labour party who, over the past three years, put their party first and who recognised that real politics is about finding real solutions and to put loyalty before country and everything else.
Tánaiste Eamon Gilmore
At a press conference on Monday afternoon, Mr Gilmore confirmed his intention to step down as soon as a successor can be elected.
"I've asked that the executive board of the party immediately make arrangements for the election of the new leader before then end of this Dáil term," he said.
The Tánaiste added that it had been an "honour and privilege' to lead the party for seven years.
"In 2011, following our most successful ever general election, I asked the party to take on the responsibility of government during the worst economic crisis in the history of the State," he said.
"I did so because I believed then as I do now that, as citizens and as a party, we had a duty to put the country first - to address the crisis, to get out of the bail-out, to reverse the loss of employment, to get the economy to recover and to do so in as fair and just a manner as humanly possible."
Mr Gilmore said it was a course that carried a high political risk and the party paid the price.
His decision to resign was taken on Sunday night and he then informed ministerial colleagues at his offices in the Department of Foreign Affairs in Dublin.
Eamon Gilmore and the Labour Party have been courageous in making the collective decisions that have pulled Ireland back from the brink of economic collapse and put the country on the path towards recovery.
Taoiseach Enda Kenny
Responding to the resignation, Taoiseach Enda Kenny hailed Eamon Gilmore and the Labour Party as "courageous" in their decision-making.
He added of Mr Gilmore: "As Minister for Foreign Affairs, he has also been pivotal to the restoration of Ireland's international reputation which has been crucial for investor confidence and job creation.
"On a personal level, the Tánaiste and I have worked very well together in managing the work of government. He is a man of integrity, courage and conviction.
"He has assured me that the Labour Party remains fully committed to providing stable government, and to the completion of our mandate to fix our public finances and to create jobs for our people."
Sinn Féin President Gerry Adams said: "This is obviously a difficult day for Eamon Gilmore and his family. However, this is not about personalities, it's about policies.
"Quite clearly, the voters have rejected the policies of this government.
"They have rejected the brutal agenda of relentless austerity, taking medical cards from sick children, water taxes and cuts to the most vulnerable.
"What is required is a change of political direction and a change of government."