The office of Ukraine's president, Viktor Yanukovych, said Azarov, who is 64, resigned because he wanted to take his parliamentary seat rather than stay on as prime minister.
He made the decision after spending two-and-a-half years trying to revive the debt-ridden economy. Despite these efforts, the economy shrank in part because demand declined for Ukraine's main export products, such as steel. The national currency, the hryvna, has also weakened.
In a statement, the presidency said Azarov's resignation means the end of the current government.
Under Ukrainian law, if the prime minister steps down, the entire Cabinet must do so along with the government chief.
Opposition leader Arsenij Jatzenjuk said he is pleased with Prime Minister Azarov's resignation - but added that the president should leave as well. He says President Yanukovych started to fulfill the opposition program because he sent away the government, but he forgot to write a declaration about his own resignation. The opposition leader claims that these are just "cosmetic changes,” and warns it will not solve, in his words, the difficult economic situation that Ukraine currently faces because of this government and president. Jatzenjuk says Ukraine is “on the edge of losing its gold reserves.”
The Cabinet's collapse comes shortly after the October 28 elections that were overshadowed by reports of vote-rigging and the imprisonment of key opposition leaders, including former Prime Minister Yulia Tymoshenko, on controversial charges of abuse of power.
Critics claim Yanukovych seeks a new prime minister within the "family," the word used to describe close acquaintances of the president, such as the first deputy prime minister or the national bank chief.
Yet, the ruling Party of Regions parliamentary chief Olexander Efremov says it is too early to draw conclusions. He says there are several candidates for the job of prime minister, adding that he “does not exclude” the possibility that Azarov will become prime minister again.
Ukraine's president has asked Azarov and his government to stay on in an interim capacity ahead of crucial talks with the International Monetary Fund on securing a new bailout loan.
The previous aid program was frozen due to what IMF delegates said was "the government's refusal" to implement unpopular austerity reforms.
Among IMF demands are calls to raise natural gas and heating prices for households to cut the growing budget deficit. Ukraine says it hopes to use fresh IMF loans to repay $6.4 billion of its debt to the international financial body next year.
The country is also involved in tough negotiations with Russia, Ukraine's main energy provider, to try to bring down the cost of imported natural gas, which Kyiv claims is above market prices and a huge drain on the already troubled economy.