Georgian President Eduard Shevardnadze on Sunday night resigned after meeting the opposition and Russian Foreign Minister Igor Ivanov.
More than 50,000 demonstrators camping outside the parliament let out a huge cheer as they came to know about Shevardnadze's resignation.
The talks between Shevardnadze, opposition leaders Mikhail Saakashvili and Zurab Zhvania were held at the president's residence and overseen by Ivanov.
"The president has accomplished a courageous act," said opposition leader Mikhail Saakashvili, head of the National Movement.
The speaker of the outgoing parliament -- opposition leader Nino Burdzhanadze -- was installed as interim president. A move the opposition said was in line with the constitution.
The United States recognised Burdzhanadze as interim president, offering support for Georgia's new leaders while urging them to seek stability, abide by the constitution and hold democratic elections.
Meanwhile the German government has said that Shevardnadze would be welcome to live in Germany.
The statement followed speculation that Shevardnadze might seek exile in Germany, set off by media reports that associates had bought a villa for him in the southern spa town of Baden-Baden.
"Should Eduard Shevardnadze decide that he wants to come to Germany, he would be welcome here, not least because of his service in the cause of German reunification," government spokesman Bela Anda said.
Shevardnadze helped negotiate Germany's peaceful reunification as Soviet foreign minister in 1990 after the Berlin Wall fell and communist rule collapsed in then East Germany.
According to CNN, TV pictures showed a plane being prepared at Tblisi airport.
Shevardnadze had declared a state of emergency on Friday after opposition supporters overran parliament.