She made the announcement after meeting with President Raimonds Vejonis, saying her government was no longer working well.
"I have informed the President of the government's resignation," Straujuma said before listing her government's achievements and thanking voters for giving her two terms in office.
"I see that new ideas are needed, new contributions and energy that can continue to build further on these foundations," Straujuma said.
Straujuma, who took office in January 2014 following the resignation of predecessor Valdis Dombrovskis, had in recent weeks been subject to repeated rumours about her resignation, apparently emanating from within her own 'Unity' political party.
On December 4 she claimed an organized campaign had been launched against her but signalled her willingness to continue in office.
Speaking to the press, Vejonis said he would talk to all political parties before choosing a new prime ministerial candidate to form a new government and that the current administration was hampered by "political infighting".
He said he would invite all political parties in Saeima to offer their ideas on formation of a new government but said external factors should not be forgotten among parties focussed on their own internal problems.
"We need to bear external politics in mind - security threats in Europe, the refugee crisis and so on, and that's why we need a government that works," Vejonis said.
Straujuma said that after the installation of a new Prime Minister and government she would resume her seat in Saeima.
Speaking at a press conference later in the day, Straujuma backed Interior Minister Rihards Kozlovskis as a potential successor and reaffirmed that her reason for stepping aside was because she was tired of political infighting.
“It's become clear that new people with new ideas are needed... the situation in recent weeks with an intensive communication campaign against me could not continue."
"I didn't want to carry on with this intrigue," Straujuma told journalists.
"I understand that new people need the chance to take over so it is logical that things come to an end... This government has come to the end of the road, but this is not the end of Latvia's road, she said."
However, she would not be drawn on the source of the campaign against her despite widespread assumptions that her party colleague Solvita Aboltina
She also backed Interior Minister Rihards Kozlovskis as her potential successor.
"Personally Mr Kozlovskis would be my choice as next Prime Minister... that's based on how I have seen him do his work... I see he is a person who gets things done," she said.
By 4 p.m. President Vējonis had announced a timetable for two days of talks with the six parties represented in Saeima, to run throughout Thursday and Friday, inviting them each to present their proposals for the formation of a new government.
"President Raymond Vējonis believes that there should be no delay in discussions on the new government, and calls on all parties in the parliament to act wisely and decisively, offering their models for the next possible coalition," a statement from his office said.
First up will be the opposition Harmony party at midday on Thursday. Despite being consistently the largest single party in Saeima, Harmony - which draws much of its support from Latvia's Russian minority - has never been in government, with other parties invariably allying to block it.
There is little likelihood that pattern will change, so that the next government coalition is likely to look similar - if not identical - to the outgoing alliance of Unity, the National alliance and the Greens and Farmers Union.
Straujuma will remain in charge until a new government is formed, after which she plans to resume her parliamentary mandate.