Mr Schroeder’s statement could pave the way for a woman to become chancellor for the first time in German history.
Mr Schroeder said in a television interview that he would not “stand in the way” of a resolution of the stalemate created by the indecisive September 18 general election.
“This is not about my claims or about me personally,” he said in backing off from his election night claim that he would remain chancellor, come what might.
“It is about the claim of leadership of the Social Democratic Party of Germany (SPD). And that is a matter to be decided by the party leadership.” the chancellor told RTL Television.
“I shall accept any decision,” he concluded, saying he did not want to stand in the way of a stable government.
While Mr Schroeder hinted that he still believed his Social Democrats should lead a grand coalition, political analysts were quick to point out that no one in his party has the charisma or influence to step into Mr Schroeder’s shoes.
His remarks came amid mounting public pressure for a resolution of the deadlock and with opinion surveys showing only 18 per cent of Germans agreed with him that he should stay on as chancellor.
On election night, he had vowed to stay on as chancellor, bolstered by voter returns showing the SPD at 34 per cent, just one point behind the CDU/CSU at 35 per cent.
Since then he has proposed a variety of scenarios, including sharing the chancellorship with his conservative opponent and likely next chancellor, Angela Merkel on a rotating basis.
He has also suggested that he would withdraw his claim to the chancellorship if Ms Merkel likewise did so.
His final change of heart came after Ms Merkel’s Christian Democrats expanded their lead over Mr Schroeder by an additional seat in balloting on Sunday in precincts of Dresden where the September 18 voting had been postponed owing to the death of a ballot candidate.
Ms Merkel’s Christian Democrats (CDU) won 37 per cent of the vote in Dresden while Mr Schroeder’s SPD got almost 33 per cent.
The Dresden results mean Angela Merkel’s Christian Democratic alliance (CDU/CSU) now has 226 seats in the German parliament’s lower house, the Bundestag.
That compares to 222 seats for Mr Schroeder’s Social Democrats, (SPD) which were won by his party when the regular election was held on September 18.
Mr Schroeder’s remarks capped a day of speeches, fireworks, street fairs marking the 15th anniversary of German unification.
German President Horst Koehler, in a Unity Day speech, noted that the divisions between East and West Germany have been more stubborn to heal than originally had been predicted in the heady days when the Berlin Wall came down.
“We are coming to the realisation that some parts of our nation will always be more disadvantaged than other regions,” he said.
“We are coming to the realisation that not every region can be a model of prosperity and happiness, even while we strive to achieve prosperity and happiness for all.”