In a televised message, Thabane said it was “time to retire from the great theatre of action”.
“I plead with the entire nation and leadership to give my successor utmost support, and on my part I wish to assure him of my support at all material times,” he added.
Finance Minister Moeketsi Majoro is expected to replace Thabane as interim premier.
The 80-year-old premier had hung on to power despite pressure from his own All Basotho Convention party to resign following allegations that he played a role in the 2017 murder of his ex-wife whom he was divorcing.
Thabane’s decision to step down is expected to come as a huge relief to a country notorious for political instability.
The embattled premier had recently lost his majority in parliament after the coalition backing him collapsed.