"Today, I made a decision to resign as Prime Minister of the Republic of Estonia in the current situation," Ratas said in a Facebook post.
"This decision was made in consultations with the board of the Estonian Center Party and the Riigikogu (parliament) faction, as well as with the closest colleagues," said Ratas, who is also the chairman of the party.
The suspicion expressed by the Public Prosecutor's Office will inevitably cast a serious shadow over all those involved, wrote Ratas, whose cabinet took office in April 2019, Xinhua reported.
"In such a situation, it seems only right that by resigning myself. I will give the opportunity to shed light on all the circumstances and to come to terms with clarity," he added.
Earlier, the Estonian Public Prosecutor's Office announced it suspected the Center Party and five individuals were allegedly involved in "possible corruption" in relation to a property development project in Tallinn, local media reported.
According to Estonian law, President Kaljulaid now has 14 days to name a new Prime Minister who would then have to be approved by the Parliament.
Addressing the media at the President's office, Kaljulaid said that she would make an offer to the head of Reform Party Kaja Kallas to become the candidate of the Prime Minister and begin forming a new government.
Ratas was also the Prime Minister of the previous government between November 2016 and April 2019.