"I have deferred my retirement... I will offer myself to the electorate in 2004," she told a crowd of 50,000 at a former US air base in her home province of Pampanga.
In announcing her decision, Arroyo cited the need to spur on the Philippines economy and repair the damage caused by the short-lived military mutiny against her on July 27. More than 300 elite soldiers seized a luxury Manila hotel and demanded she step down.
"I hope that the fight now will be a fight through the ballot and will not be a fight to topple the government through the use of violence," she said.
Arroyo said she was reluctant to go back on her earlier promise not to run but felt compelled to do so by the problems faced by the country.
"In the more than two and a half years of my presidency, I have gained the experience necessary to understand what we need to do in order to change society in a way that leads to economic development and the elimination of poverty," she said.
Although the gathering was supposed to be a venue for a policy speech, it became a virtual political rally, attended by all the leaders of Arroyo's ruling Lakas (Force) party, including House Speaker Jose de Venecia and Lakas president Feliciano Belmonte.
Arroyo had said in December she would not run for another term in the 2004 elections so she could stay above politics and focus on government reforms.
However her critics have long contended this was just a ploy to get public sympathy and that Arroyo was planning to change her position and run all along.
Hernani Braganza, an official of Lakas, said that Arroyo's earlier refusal to declare that she was running for president had "handicapped" her party.
"The opposition is already ahead of us. Many of them have already announced their presidential candidates and they continue to criticize the government," he said.
As vice-president, Arroyo took the presidency in 2001 after her predecessor, ex-president Joseph Estrada was ousted in a popular, military-backed uprising in 2001 due to a massive corruption scandal.
However, Arroyo has suffered setbacks in recent days such as the resignation of her vice president, Teofisto Guingona, and Senate Majority Floorleader Loren Legarda-Leviste, from Lakas.
Guingona, who had been earlier resigned from Arroyo's cabinet over her pro-US policies, had accused Arroyo of failing to curb corruption. However, he remains vice-president.
Arroyo trailing in polls
Beyond facing the struggle by armed opposition fighters for independence in the province of Aceh, for example, Arroyo has grappled with seemingly intractable economic problems.
In another ominous sign, a respected research group, the Manila-based Social Weather Stations, released the results of a survey in September that found that Arroyo trailed two would-be rivals for the 2004 presidential race.
The poll said the frontrunner is Senator Noli de Castro with 28 percent, followed by former education secretary Raul Roco at 20 percent, and Arroyo at 17 percent.
A total of 1200 probable voters were polled, with an error margin of plus or minus three percent.