The prime minister had to call an election before May, when his party, the Panhellenic Socialist Movement, known as Pasok, sees its four-year term expire, the BBC reported.
Simitis said it was time for "a younger generation" to take responsibility and move forward in modernizing Greece and preparing it for convergence with the European Union.
"The time has come for me to take the next step for the renewal of our political life," he said. "The (new) leader has to represent this renewal."
Simitis said he would also begin procedures for the election of a new president of Pasok, which is said to be trailing the opposition conservative New Democracy Party in opinion polls, the BBC said.
Simitis is expected to nominate his foreign minister, George Papandreou, to replace him as party leader.
Papandreou's grandfather, also named George, was prime minister in the 1960s.