Angela Merkel is to stand down as leader of her party but wants to remain as chancellor of Germany, according to reports.
"It is time today for me to start a new chapter", Merkel told reporters in Berlin.
She added that she would not handpick her own successor as head of the CDU party when she steps down in December.
The election campaign in prosperous Hesse, which includes Germany's financial centre of Frankfurt, has been largely overshadowed by the woes of a federal coalition in office only since March.
But at home, even a change-averse electorate has started to grow tired of the leader dubbed "Mutti" (Mummy) and the cautious and glacial style of consensus politics her coalition government is now associated with.
That's a major concession for Merkel, who for years has insisted that the chancellor should also be party leader.
Mrs Merkel's conservative CDU party now rules along with the centre-left Social Democratic Party (SDP).
Earlier this year, she appeared to have given her blessing to Kramp-Karrenbauer, 56, the onetime leader of the west German state of Saarland and now the CDU's general secretary. She is not expected to run for a fifth term as chancellor in 2021.
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The surprise announcement that Merkel would leave her party's leadership but remain in the chancellorship did not satisfy her critics. It wasn't. In the Bavarian election two weeks ago, the CDU's Bavarian sister party, the Christian Social Union, placed first but lost its absolute majority after its worst showing in six decades.
"Merkel chose not to use barbed wire, clubs, water cannon, machine guns and tanks to chase away thousands of desperate refugees on the German border", wrote her friend, the singer-songwriter Wolf Biermann.
Yesterday, the party suffered massive losses during regional elections in the state of Hesse, which has always been a bellwether for the nation. The backlash, especially in less prosperous eastern Germany, was swift, giving rise to the AfD, which many Germans condemn as a neo-fascist party.
Merkel herself has said in the past that the chancellor should also be the leader of the ruling party.
Often referred to by her initials "AKK", her Catholic views overlap more with the conservative wing of the CDU than Merkel on social questions like abortion or gay marriage.
"I will not be seeking any political post after my term ends", she told a news conference in Berlin.
Observers see Merkel decision as a further sign of her dwindling political power.
Increasing numbers of SPD members have been calling for the party to quit government and lick its wounds in opposition, as it is presently polling below AfD nationwide, at 15 percent to the far-right's 16 percent.