Adnan Al-Zurfi, who was named by Iraqi President Barham Salih to form a new government, withdrew from forming a Cabinet on Thursday.
"My decision came in line with our Iraq's best interests and in order to maintain our country's unity," Al-Zurfi told reporters in the capital Baghdad.
On March 17, Salih named Al-Zurfi to form a new government, according to the state television. The broadcaster said Al-Zurfi was mandated to form the government within 30 days as per the constitution.
Al-Zurfi is a leading member of the Victory Alliance led by former Prime Minister Haidar al-Abadi, and he is also a former governor of the southern Najaf province.
Shia groups in Iraq have made an agreement to nominate intelligence chief Mustafa al-Kazemi instead of al-Zurfi.
Sunni and Kurdish groups also announced their support for Kazemi.
President Salih is expected to give the task of forming the new government to Kazemi.
Iraq has been roiled by mass protests since early October over poor living conditions and corruption, forcing Prime Minister Adel Abdul-Mahdi to resign.
More than 600 people have been killed and 17,000 injured in the protests so far, according to the Iraqi rights commission.
