Dominique Strauss-Kahn resigned as head of the International Monetary Fund, ending a leadership crisis at the organization following charges that he sexually assaulted a hotel maid in New York.
Dominique Strauss-Kahn is arraigned in Manhattan Criminal Court.
In a letter to the board, Mr. Strauss-Kahn said: "I deny with the greatest possible firmness all of the allegations that have been made against me."
The letter said Mr. Strauss-Kahn, being held in a New York jail on sexual-assault charges, would resign with immediate effect.
"I want to protect this institution which I have served with honor and devotion, and especially—especially—I want to devote all my strength, all my time, and all my energy to proving my innocence," the letter said.
The IMF, which released the letter just after midnight Thursday, said it "will communicate in the near future on the Executive Board's process of selecting a new Managing Director." It added that John Lipsky remains as the acting head.
The resignation brings a quick end to the paralysis that has gripped the IMF since Mr. Strauss-Kahn was arrested several days ago. The IMF is in the midst of negotiations about the next steps to take in resolving Greece's financial problems and his absence from the talks has been seen as a major problem.
His resignation will put in high gear the global search for a replacement. By tradition, a European is selected to head the IMF and French Finance Minister Christine Lagarde is considered the front runner.
But the Group of 20 nations has pledged an open selection process, which could mean that a challenger emerges from the large group of emerging nations. South Africa, in particular, has already said that the next managing director shouldn't hail from Europe.
The U.S., which will play a big role in the selection process, hasn't said who it would back.
On Thursday, Mr. Strauss-Kahn will make a bid to be released from jail, attorneys in the case say. In papers filed Wednesday in State Supreme Court in Manhattan, Mr. Strauss-Kahn's attorneys redoubled efforts to have their client released from Rikers Island, offering to post $1 million in cash bail and saying he had agreed to submit to around-the-clock home detention in Manhattan and electronic monitoring.
Christine Lagarde and Dominique Strauss-Kahn at a Europe-China trade conference in Paris in June 2010.
Mr. Strauss-Kahn's accuser testified before a grand jury that is weighing the charges, and will return Thursday, said her lawyer, Jeffrey Shapiro.
European governments earlier Wednesday had started to rally around Ms. Lagarde as the fund's next possible head, saying she would be the best placed to replace her compatriot and become the first woman to lead the institution.
Swedish finance minister Anders Borg said that, should the position of IMF managing director be open, Ms. Lagarde stood out for the role she has played in managing the euro zone's fiscal crisis and global financial coordination. "Madame Lagarde is one of the obvious candidates," he told Sky News television channel.
That represented the first public endorsement of Ms. Lagarde, a corporate lawyer who has been France's finance minister since 2007. But many European governments have privately expressed support for her in the days since Mr. Strauss-Kahn's arrest Saturday on a jet about to take off from New York for Paris, coalescing around her as the fastest way to secure a smooth transition at the IMF.
Calls for Mr. Strauss-Kahn to step aside have come from both sides of the Atlantic, including from France's ruling Union for a Popular Movement party. "I don't see how he can fulfill his mandate of IMF managing director," said party leader Jean-François Copé.
The bail request filed by Mr. Strauss-Kahn's attorneys appears no different from one that was rejected Monday by Judge Melissa Jackson. Requests to reconsider bail are common. Mr. Strauss-Kahn's attorneys couldn't be reached for comment.
The IMF's 24-person board of directors took no action Wednesday in response to U.S. Treasury Secretary Tim Geithner's call for it to formally ratify the IMF's No. 2, Mr. Lipsky, as the acting managing director. He took on the role automatically under standard IMF procedures during Mr. Strauss-Kahn's absence. The board didn't release a public statement about its leader.
Under fund bylaws, the board can remove the managing director for any reason. Whether he is removed or resigns, the IMF chief would be eligible for severance pay of up to 60% of his annual pay, an amount that could be reduced if he soon took other employment.
Mr. Strauss-Kahn, who took his position in November 2007, earned a largely untaxed salary of $441,980, as well as a living allowance of $79,120, in the fund's 2010 fiscal year. Asked whether the managing director continues to draw his salary while in jail, an IMF spokesman didn't immediately respond.
The IMF, an organization of 187 countries, advises and lends to member nations while serving as a coordinator for global economic policies. Neither Ms. Lagarde nor her spokesman could be reached for comment. Asked Monday if she would seek the IMF chief position, Ms. Lagarde said: "I won't respond to this question, as you can imagine." In France, officials said it was too early for the government to propose Ms. Lagarde for the IMF top job. A spokesman for French President Nicolas Sarkozy couldn't be reached for comment.
Should France put Ms. Lagarde forward, she would receive the crucial support of German Chancellor Angela Merkel, say people familiar with the matter. Ms. Lagarde may face a hitch in the form of potential legal problems at home, but Germany expects France to propose Ms. Lagarde despite these, according to one of these people.
Ms. Lagarde would bring crisis-busting credentials to an institution dealing with its own turmoil, several European government officials said. Apart from German support, Ms. Lagarde is also highly regarded by the U.K. government, although London has formally reserved its position.
Other names have also been mentioned as potential candidates, including European Central Bank President Jean-Claude Trichet, suggested by Dutch central banker Nout Wellink on Wednesday.
The IMF has always been led by Europeans, by longstanding agreement with the U.S. European governments argue that with Europe in the grips of a financial crisis, now isn't the time to shift to a non-European chief.
A U.S. Treasury Department spokeswoman declined to comment on the U.S. position on Ms. Lagarde. Mr. Geithner has worked closely with Ms. Lagarde throughout the financial crisis and has spoken highly of her among colleagues, a sign that he would likely support her if Europeans were to back her for the IMF job.
A Potential Successor to Lead the Fund
Christine Lagarde's career in the private and public sectors
1956: Born in French port city of Le Havre to a university-professor father and schoolteacher mother
1981: Admitted to Paris bar; joins U.S. law firm Baker & McKenzie in Paris, specializing in corporate law
1999: Named chairman of executive committee at Baker & McKenzie
2005: Returned to France after 10 years in the U.S. to take post of trade minister in then-President Jacques Chirac's conservative administration
2007: Named finance minister in President Nicolas Sarkozy's government after a brief stint as agriculture minister
"Her lightning-quick wit, genuine warmth and ability to bridge divides while remaining fiercely loyal to French interests have been a source of admiration," Mr. Geithner said of Ms. Lagarde in 2009 when she was listed by Time magazine as a world leader.
Officials said euro-zone governments are seeking a figure familiar with the region's ongoing debt crisis. Given the risk the crisis poses to the world economy, they believe non-European governments may support a European candidate one last time. "And she's a woman, which makes an extra argument," one senior official said.
The officials acknowledge that beyond Ms. Lagarde, it would be hard to find an alternative who could count on such widespread support inside Europe.
Europe's traditional hold over the IMF is guided largely by an informal convention with the U.S., which has taken the top post at the World Bank. The U.S. and European nations together hold a majority voting stake in the IMF.
"If there should be some dancing here, there should be at least two as part of a tango," Mr. Borg, Sweden's finance minister, said of any change from the convention. "We obviously see no interest coming from the American side to reduce their representation at the World Bank, or at the fund."
That suggests the price for U.S. support for a non-European candidate may mean that Washington also loses its ability to pick the World Bank head. The five-year term of the current bank president, Robert Zoellick, expires in the summer of 2012.
It isn't clear that emerging economies are ready to agree on a single candidate. Brazil's finance minister Guido Mantega said the top IMF role shouldn't be reserved for a European. South Africa's finance minister Pravin Gordhan also forcefully argued the point. "Institutions such as the IMF must reform so that they can become credible, and to be credible they must represent the interests and fully reflect the voices of all countries, not just a few industrialized nations," Mr. Gordhan said in a statement. A candidate from a developing country, he added, "will bring a new perspective" to the IMF.
A former U.S. official said the only way to block Ms. Lagarde is for the BRICS countries—Brazil, Russia, India, China and South Africa—to quickly agree on a candidate and force the U.S. and EU to respond.
China's government isn't expected to take the lead in any wheeling and dealing over a successor, said a number of prominent academics in Beijing. "I don't think BRICS will sit together to find a candidate," Peking University economist Huang Yiping. "If one country has a very strong candidate, it could look for support from the others."
One obstacle for Ms. Lagarde is for her to clear her name of accusations that she overstepped her authority as minister. In 2007, she referred a protracted case that had pitted the French state against French businessman Bernard Tapie to an arbitration panel, rather than allow court legal proceedings to continue.
Earlier this month, a Paris prosecutor recommended the matter be examined by a special court for ministers in office. The prosecutor, Jean-Louis Nadal, said he had gathered information pointing to possible "abuse of authority" by the finance minister. The court is expected to decide by mid-June whether to launch a probe. Ms. Lagarde has said she never overstepped her authority.
Before entering French politics, Ms. Lagarde, now 55, had a long career as a corporate lawyer, joining the French branch of Baker & McKenzie in 1981 and holding the chief executive post of the U.S. law firm from 1999 to 2004. She returned to her home country in 2005 to become trade minister in the administration of France's then-president Jacques Chirac.
In May 2007, just-elected Mr. Sarkozy named her agriculture minister and a month later gave her the finance ministry brief. Ms. Lagarde, a rare fluent English speaker among French ministers, has in her four years as finance minister visited many of the IMF's top borrowers in Europe and Africa.
Mr. Strauss-Kahn and Ms. Lagarde come from opposite sides of the political spectrum, but both adhere to free-market principles. Like Mr. Strauss-Kahn, Ms. Lagarde would bring an impressive Rolodex to IMF headquarters in Washington.
But whereas Mr. Strauss-Kahn—who holds a Ph.D. in economics and worked as a university professor—enjoyed lecturing fellow cabinet members on economic issues when he was finance minister in the late 1990s, Ms. Lagarde is known for keeping a lower profile in implementing Mr. Sarkozy's orders.
The French minister has since helped broker solutions to keep European banks afloat and has gained more poise on France's political scene. Late last year, a controversy arose as to whether she had ordered her jewelry be airbrushed from a photo of her published on the cover of a local Paris free newspaper. Political opponents railed at her for having tried to tone down her bourgeois look.
—Nathalie Boschat, David Gauthier-Villars, Stephen Fidler, Tamer El-Ghobashy, Marcus Walker, William Horobin and Laurence Norman contributed to this article.