Lebanese President Michel Suleiman has formally accepted the resignation of the prime minister, who stepped down blaming government infighting during a time of rising sectarian tensions.
The departure of Najib Mikati could plunge Lebanon, already struggling to cope with a spillover of violence and refugees from Syria's two-year-old civil war, into further turmoil and uncertainty three months before a planned parliamentary election.
Mikati called for the formation of a national unity government.
"I announce the resignation of the government, hoping that this will open the way for the major political blocs to take responsibility and come together to bring Lebanon out of the unknown," Mikati told a news conference on Friday.
The resignation on Friday came after a two-day ministerial meeting remained deadlocked by a dispute with Hezbollah, a political movement that has dominated Lebanese politics in recent years and helped put Mikati into office after toppling the previous government.
Shia group Hezbollah and its allies blocked the creation of a body to supervise parliamentary elections which is due in June and opposed extending the term of a senior security official.
The cabinet failed on Friday to extend the term of Major General Ashraf Rifi, head of Lebanon's internal security forces, who is due to retire early next month.
Rifi, like Mikati, is a Sunni Muslim from Tripoli.
Mikati was appointed prime minister in 2011 after the Hezbollah and its allies brought down the unity government of Saad al-Hariri, son of former prime minister Rafik Hariri who was assassinated in 2005.
During his two years in office he has sought to insulate his country from the civil war in neighbouring Syria which deepened Lebanon's own sectarian tensions and led to street battles in the northern city of Tripoli.
Sporadic clashes erupted again in Tripoli early on Saturday, residents said, with at least two people wounded by sniper fire.
Lebanese politicians have yet to agree arrangements for the poll.
The president and the prime minister said they were not prepared to chair any cabinet meeting if the supervisory body was not on the agenda, ministers said, effectively halting further cabinet meetings.
Under Lebanon's division of power, the prime minister must be a Sunni Muslim, the president a Maronite Christian and the speaker of parliament a Shia Muslim.
Former Prime Minister Fouad Siniora, a close political ally of Hariri who had frequently called for Mikati to step down, said the resignation "opens the possibility of fresh dialogue" between Lebanon's political camps.
The influx of Syrian refugees, as well as Lebanon's own political turmoil, have caused a sharp slowdown in Lebanon's economy and a 67 percent surge in its budget deficit last year.