"We cannot let the government be destabilized when the country is at war," he said during a televised address.
His formal resignation is expected Tuesday.
Yatsenyuk called for the formation of a new government, and said on Twitter that politician Volodymyr Groysman had been nominated to replace him as Prime Minister.
He also said that the heart of Ukraine's problems is not "purely political," but ethical.
"As of today my goals are broader: new electoral law, constitutional reform, judicial reform, Ukraine's membership in the EU and NATO," Yatsenyuk wrote on Twitter.
Yatsenyuk became prime minister after Ukraine's pro-Russian President Viktor Yanukovych was booted from office in February 2014 during the Maidan Revolution. Yatsenyuk led the opposition party called Batkivshchyna and sought a more "pro-European" direction for Ukraine.
He rode a wave of popular support as Ukrainians marched into the streets demanding a dial back on Russian influence in the former Soviet republic.
But the euphoria was short-lived.
Within weeks, Ukrainian forces were fighting Russian-backed separatists in the eastern part of the country. Russia annexed Crimea in March 2014, which prompted a strong backlash against Putin from Western powers.
Although the two countries signed a ceasefire in February 2015, adherence to it has been unsteady at best.
The fighting has also contributed to the ravaged state of Ukraine's economy.
The International Monetary Fund has agreed to provide a $17.5 billion emergency lifeline for Ukraine, demanding economic reforms in exchange for its money. But the reforms required by the IMF are hugely unpopular in Ukraine. Yatsenyuk, tasked with implementing them, saw his popularity suffer.
The president and prime minister at odds
In recent months, political divisions have deepened in Kiev. Ukrainian President Petro Poroshenko had called for Yatsenyuk to step down in February
On Sunday, the President released a statement, urging Parliament to form a new coalition and choose a new Prime Minister soon.
"I agree that the country can no longer put up with the absence of the authorities. That is why I expect the Parliament to bring good news the next week," Poroshenko said.
"They must form a coalition. It is very popular today to have a right to criticize, but not to assume responsibility, enter the coalition and vote. It is irresponsible for the country. I hope that the majority of people's deputies will be responsible, form a coalition and submit a candidature for Prime Minister to me on Tuesday," he added.
The U.S. chimes in
U.S. Vice President Joe Biden and Yatsenyuk spoke Sunday about the Prime Minister's plan to step down.
They agreed on the importance of putting together a Cabinet to implement reforms, especially the steps recommended by the IMF and European Union, according to a statement from the White House.
"The Vice President thanked Prime Minister Yatsenyuk for his partnership during a historic time for Ukraine. He congratulated the government of Ukraine on its accomplishments over the past two years, in particular on the strides it has made on difficult but necessary economic reforms, the signature of the European Union association agreement, and the work it has done to increase energy independence," the statement read.
"The leaders agreed these changes must be irreversible and that continued progress is critical to securing a prosperous future for the people Ukraine."