Azarov said he had taken a "personal decision" to resign to preserve Ukraine's unity as parliament opened a session to vote on reforms and concessions backed by President Viktor Yanukovych.
The European Union and United States cranked up pressure on Yanukovych to impose serious reforms to end a standoff that turned parts of Kiev into a war zone patrolled by masked protesters and left three activists dead.
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EU foreign policy chief Catherine Ashton brought forward a visit to Kiev by several days while US Vice President Joe Biden urged Yanukovych to work with the opposition on "immediate measures" to de-escalate the crisis.
The crisis was also due to dominate a summit between the European Union and Russia attended by President Vladimir Putin who will not want the standoff to overshadow the Winter Olympics in Sochi starting February 7.
In a dramatic morning announcement, Azarov yielded to months of pressure from the opposition who have made his resignation a key demand of protests based on Independence Square in Kiev.
Azarov said that he hoped his resignation would create "an additional possibility for a political compromise to peacefully resolve the conflict".
"The government has done everything during this standoff for a peaceful resolution of the conflict," he said, adding that his cabinet had been forced to work in "extreme conditions".
"Today the most important thing is to preserve the unity and integrity of Ukraine. This is far more important than any personal plans or ambitions. That is why I have taken this decision," he said.
There was no immediate comment from the opposition, with a spokesman for the Fatherland Party telling AFP they were waiting to confirm that Yanukovych would accept the resignation.
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