Thaksin said in a handwritten letter that was read out on Tuesday by a party official in Bangkok: "I must resign because of the new environment. I have to do this to keep the party alive."
Already rocked by an exodus of the rank and file, soon after the military government began investigations into its activities during Thaksin's leadership, the former ruling party is now facing an uncertain future.
"I would like to thank everyone, including the party committee and all the staff for building our party and making it strong enough to become a party for the people, with more than 14 million members who had confidence in us to form a government for two terms," the letter said.
Pongthep Thepkanjana, the party official, told reporters that the letter was dated October 2 and sent from London, where Thaksin has been living since the military toppled him in a bloodless coup two weeks ago.
Thaksin created Thai Rak Thai, or Thais Love Thais, in 1998 and transformed it into a political machine that won widespread popularity, especially in mainly rural northern Thailand.
His party was the first to lavish attention and resources on the rural poor, whose incomes rose dramatically during his five years in office.
Scores of top level party members, including Surakiart Sathiarathai, Thaksin's former deputy premier, resigned on Monday as the country's government stepped up investigation into alleged corruption under Thaksin.
'The party is over'
Thaksin assigned Sudarat Keyuraphan, the party's deputy leader, to serve as the acting head, but that was largely seen as ceremonial since the party is unable to engage in politics under the martial law imposed by coup leaders who removed Thaksin on September 19.
Pongpol Adireksan, another party leader, said: "The legacy of the Thai Rak Thai party is over. The Thai Rak Thai has died along with Thaksin Shinawatra."
He said that an executive order issued by the ruling military council on Saturday "clearly showed that it aims to dissolve the Thai Rak Thai and shut the door for Thaksin to return to politics." He added that more than 200 party members had resigned since Saturday.
Among them was Somkid Jatsuripitak, deputy prime minister, regarded as Thaksin's right-hand man and his top economic adviser, who submitted his letter of resignation on Tuesday morning.
Somkid was also the co-founder of Thai Rak Thai and a former finance and commerce minister.
The executive order will ban members of a political party from political activities for five years if courts find that the party had breached election laws and is dissolved.
Thaksin's party, which held a parliamentary majority after sweeping several elections, is under legal scrutiny for alleged violations during a snap election in April.
Thaksin was overthrown by senior military officers in a bloodless coup on September 19 while he was abroad on official business in New York.
After the coup, he flew to London, where he has an apartment.