During his announcement, Davutoglu said he would remain loyal to the ruling Justice and Development Party, or AK Party.
"Following consultations with the president, I came to the conclusion that a change in the position of the leader of the party and the prime minister's position would serve a better purpose," Davutoglu said. "This must be carried out in a peaceful way keeping the integrity of the party."
Davutoglu also said he and Erdogan share a "brotherly relationship," adding that "You will never hear me say negative things about the president."
"Our president said he wanted a strong prime minister, and I tried to carry the flag the best I could. I never interfered with any decisions about our party," Davutoglu said. "I never interfered with any decisions through a personal perspective. Our party is about to enter a new era, subsequent to consultations with my colleagues in the party."
The resignation did not come as a surprise. Presidential aide Cemil Ertem indirectly confirmed the reports earlier, stating there would not be snap elections following the appointment of a new prime minister -- adding that Turkey and its economy will stabilize more "when a prime minister more closely aligned with President Erdogan takes office."
Erdogan hand-picked Davutoglu in 2014 to succeed him as the leader of their AK Party, but it is believed both men have disagreed on Erdogan's desire to move Turkey into a more presidential form of government. Davutoglu met with Erdogan and the AK Party's executive committee on Wednesday.
Erdogan's Turkey has been widely criticized as being more authoritarian. Many believe Erdogan chose Davutoglu to be his "yes man" while he planned constitutional changes to increase presidential powers. Early on Wednesday, Erdogan said "people should not forget how they attained their position" -- a comment regarded as a reference to Davutoglu.