In a 15-minute national televised address, Suharto said he would stay in power for the time being to prepare the nation of 200 million people for a new political era. When elections are held for a new Parliament, he said he would declare himself "not available" to serve as president.
"I will not be prepared to be elected any more," the 76-year-old leader said in a deep monotone, reading with his head down from a prepared text.
The announcement means that Asia's longest-serving leader will not finish his full term, which was to have ended in 2003. He has faced growing calls to quit as leader of the world's fourth most-populous nation.
Under Indonesia's political system, an assembly made up of the Parliament and government appointees elects the president.
Suharto did not say how long the process would take but it could drag on for several weeks or perhaps longer, something that concerns the students leading the anti-goverment protests.
In reaction to the announcement, one student leader said Tuesday that the protests will continue because Suharto should step aside immediately, rather than stay on any longer.
Suharto has been under pressure to resign amid the worst political and economic turmoil since he became president in 1968. At least 500 people were killed in Jakarta last week in riots and anti-government protests over price increases.
His nation in chaos after a week of deadly rioting, Suharto earlier Monday lost the support of top Parliament allies but held onto the all-important backing of Indonesia's powerful military.
Parliament Speaker Harmoko said that leaders of Parliament's four factions would make a joint appeal Tuesday for Suharto to step down.
"We will urge Suharto to resign for the integrity and the unity of the nation," Harmoko said as more than 3,000 student protesters rallied for political change outside the Parliament building, guarded by a cordon of troops.
On Tuesday, about 5,000 students angered by the military's response gathered at the legislature waving Indonesian flags and singing songs. About 50 of the protesters climbed onto the roof of Indonesia's Parliament.
"Change Suharto right now," the group chanted in front of a line of soldiers guarding the legislature.
Protests also were reported at several campuses around town.
Suharto held urgent talks Monday with his vice president and key Cabinet ministers.
Suharto appeared live on national television briefly Tuesday morning from the presidential palace, where he received nine community officials.
The autocrat, looking relaxed and smiling, was shown speaking into a microphone. There was no audio, however. Two hours later, Suharto went back on the air to anounce the several measures leading up to his stepping aside.
The military presence had visibly increased near the presidential palace early Tuesday. More armored tanks were seen, barbed-wire roadblocks had been erected in at least two spots and several hundred troops were being addressed by an officer near the palace.
Also Tuesday, the British embassy said two British men were killed in apparent robbery attempts. "There was no clear evidence to suggest that either death was the result of mob violence," said embassy spokesman Hamish Daniel.
The U.S. Embassy, meanwhile, said it had temporarily halted visa services from Indonesia due to reduced embassy staff following the riots.
Suharto, his power virtually unassailable for three decades, now finds his government splintering, riven by the strain of the nation's financial crisis and ever louder demands for new leadership.
Last week's rioting, burning and looting over food and fuel price increases set off by an IMF-mandated bailout program loosened Suharto's hold on this large island nation.
On Monday, however, years of courting military brass paid off for Suharto, himself a retired army general. Indonesia's armed forces chief, Gen. Wiranto, indicated at a news conference that Suharto should stay in power and guide the implementation of political reforms.
Any transition of power should be handled by an electoral assembly, Wiranto said, rejecting Harmoko's assertion that Suharto should heed political leaders' wishes and quit.
Pushing for democratic change, President Clinton said in London that Indonesia's people should decide who leads the country.
The Association of Southeast Asian Nations, meeting Tuesday in Manila, Philippines, said it would not interfere in Indonesia's political crisis unless Indonesia requested help.
©1998 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed