Thabo Mbeki agrees to step down after ANC decides to oust him from South Africa presidency

The ANC's decision to remove Mbeki, who is favoured by investors for his pro-business policies, threatens to raise political instability in Africa's economic powerhouse 14 years after its transition from the end of white minority rule.

If Mbeki does resign and the replacement process is smooth, however, investor reaction may be muted.

Ousted: South Africa President Thabo Mbeki is reported to have agreed to step aside after the ANC agreed to oust him before the end of his term next year

'After a long and difficult discussion the ANC decided to recall the President before his term of office expires,' ANC secretary-general Gwede Mantashe told a news conference.

Mantashe said Mbeki, who has ruled South Africa since taking over from Nelson Mandela in 1999 and was due to leave office in April, 2009, had 'welcomed the news' when he was told. He said he would accept the decision.

Mbeki had led the ANC for about a decade until last year when he was defeated by Jacob Zuma in a bitterly contested election.

Zuma had been the frontrunner to succeed Mbeki, a transition that was expected to occur next year after general elections.

It is unclear whether Zuma, who has strong support from trade unions, would immediately step into the breach left by Mbeki.

Deputy President Phumzile Mlambo-Ngcuka could assume the presidency but she has signalled she will resign along with Mbeki.

Cabinet ministers and the speaker of parliament would follow in the succession line depending on how Mbeki is removed.

It is generally expected that parliament, which is dominated by the ANC, will elect a new president within 30 days.

Baleka Mbete, the speaker of parliament and a Zuma loyalist, has been mentioned as the most likely one to lead the transition.

Mantashe said the ANC would ask Mbeki's cabinet ministers, including Finance Minister Trevor Manuel, to remain in their positions in the transition period for the sake of stability.

Mbeki's presidency ended after a heated debate within the ANC executive committee over his future in the wake of allegations he had meddled in corruption case against Zuma.

Trade unions and ANC members have accused Mbeki and his senior aides of plotting to smear Zuma and derail his hopes of succeeding Mbeki. The South African leader has consistently denied any involvement in the prosecution.

Last week a judge dismissed the charges against Zuma, which were linked to an arms deal, and suggested that there had been high-level political involvement in the case.

The ruling spurred Zuma militants within the executive to demand Mbeki's head.

Mbeki's departure, especially if followed by others in cabinet, particularly Finance Minister Manuel, could heighten concerns about the country's economic direction.

Growth has slowed this year in South Africa, struggling to contain a sharp rise in inflation and the fallout from an electricity crisis that has dented the economy, particularly the important mining sector.