He also named two top officials who could succeed him in an address at Monrovia's stadium to mark Liberia's independence.
"They (the international community) have imposed an arms
embargo... economic sanctions, and as long as I am here you will continue to suffer... therefore I have decided to quit," Taylor said.
"For one man, Charles Taylor, Liberia cannot die," he added.
Forces loyal to Taylor has been engaged in fierce fighting against the rebel Liberians United for Reconciliation and Democracy (LURD) in Monrovia over the past week.
Hundreds of civilians have been killed.
Taylor said he wants to hand over power either to Vice President Moses Blah or to national assembly speaker Nyundueh Morkonma.
"One of these two men will lead this nation," said Taylor, in rare public appearance since the start of the month-long siege of the capital.
Taylor's affirmation to step down came shortly after a mortar attack on a church filled with refugees in the Liberian capital killed at least six people and injured scores more.
The assault followed a ceasefire declaration by rebels on Friday. US President George W. Bush said he ordered a troop-carrying ship to the region to support a planned Nigerian-led intervention force aimed at restoring order to the war-ravaged country.
"People are dying here every day.” -- Oxfam worker Sam Nagbe
Drinking water is now in short supply, with vast tracts of the population relying on un-chlorinated wells. The main rebel force, Liberians United for Reconciliation and Democracy has vowed to restore peace to the country's 3.3 million inhabitants.
There is a real risk of cholera outbreaks and food is scarce. As many as 600 civilians have perished in the past seven days.
“People are dying here every day,” Oxfam worker Sam Nagbe told a news organisation. “The Americans must play a leading role in an immediate peacekeeping intervention.”
Discussions between the US and other West African countries, principally Nigeria, over what shape an intervention should take, have delayed international action to stem the slaughter.
"We don't want to get there and make a lot of mistakes," General Martin Luther Agwai, chief of staff of the Nigerian army, told reporters on Thursday.
"We want to make sure that everything is done right so that once we get there, we deliver," he added.
The Economic Community of West African States (ECOWAS) agreed at a meeting in Senegal on 23 July to send a contingent of Nigerian soldiers to restore order in the capital.
Still, two Nigerian battalions remain on standby and are not expected in Liberia until next week. African leaders meet Monday in Ghana to finalise deployment plans.
Meanwhile, Liberian government forces and rebels continued to fight pitched battles for control of the country's scarred capital.
The West African country, settled in the 19th century by freed US slaves, has largely been destroyed by war. Its people earn less than $1 a day amid vast resources of diamonds, timber and rubber.
Liberia is "poised between hope and disater," United Nations Secretary General Kofi Annan said earlier this week.
"I think we can really salvage the situation if troops were to be deployed urgently and promptly," he added