"Today, I have reluctantly accepted Harriet Miers' decision to withdraw her nomination to the Supreme Court of the United States," he said on Thursday. "My responsibility to fill this vacancy remains. I will do so in a timely manner."
The move came as Bush languished at his worst level ever in public opinion polls and was bracing for the possible indictment - as early as this week - of senior aides in connection to the unmasking of a CIA agent in 2003.
The court wields enormous influence over American life as the final arbiter of the US Constitution and the ultimate court of appeal, and it has ruled on issues such as abortion, the death penalty and civil rights. Justices are named for life but can step down.
Bush had anointed Miers - a long-time aide who serves as White House counsel, his official government lawyer - on 3 October to replace retiring Supreme Court Justice Sandra Day O'Connor.
But the nomination immediately ran into trouble, with widespread accusations that the president had picked a crony, as well as a revolt from some of Bush's core supporters, who saw her as insufficiently conservative.
Opposition Democrats were divided on whether Miers was qualified for the post but seemed to agree that diehard conservatives in Bush's Republican Party were to blame for the president's decision.
Bush is at his worst ever level in
public opinion polls
Senate Minority Leader Harry Reid, the body's top opposition Democrat, blamed the "radical right wing" and said "apparently, Ms Miers did not satisfy those who want to pack the Supreme Court with rigid ideologues".
The conservative group Concerned Women for America, which opposed Miers' nomination, praised her for "putting the needs of the American people and the judicial system above her own personal ambitions".
Miers, 60, will stay on as White House counsel and is expected to help the president choose his next nominee for the nine-seat US Supreme Court, according to Bush spokesman Scott McClellan.
McClellan said Miers had telephoned Bush at 8.30pm on Wednesday (0030 GMT Thursday) to let him know she was withdrawing, and formally offered him her resignation letter in the Oval Office 12 hours later.