Former Foreign Minister Abdullah Abdullah told a news conference in Kabul that he made his decision to pull out of the runoff after Karzai turned down his demands for changes to the Independent Election Commission (IEC) and other measures that he said would prevent massive fraud, the Associated Press reported.
"I will not participate in the Nov. 7 election," Abdullah said, because a "transparent election is not possible."
The move may effectively hand a new term to Karzai, although the next steps for the runoff vote appeared clouded in uncertainty. It is technically too late for any candidate to formally withdraw from the ballot.
In a statement Sunday, the Karzai campaign team said they would respect "whatever decision is made" by the election commission and other legal agencies. They refrained from criticizing Abdullah and said they hoped to "complete the election process with national unity," the Washington Post reported.
Afghanistan's IEC ordered a runoff between Karzai and Abdullah to take place Nov. 7, after an investigation into complaints of election irregularities found countrywide voter fraud.
After the original Aug. 20 vote, the IEC said Karzai won with a vote tally of 54.6 percent. But a probe into allegations of fraud, including reports of more than 100 percent turnout at some polling stations, dropped his tally to below 50 percent -- the amount needed to avoid a runoff.
Karzai had initially resisted calls for a new vote, but Western officials pressured the Afghan leader to agree to the Nov. 7 runoff.
"Based on election laws and based on the constitution there should be a second round. The constitution is clear," Daoud Ali Najafi, chief electoral officer of the government-appointed IEC, told Reuters.
Kai Eide, the top U.N. official in Afghanistan, said in a statement that the next step is to "bring this electoral process to a conclusion in a legal and timely manner." The statement did not address whether the runoff should go forward, the AP reported.
Abdullah later told reporters that he was not calling for a boycott, but instead leaving it up to his supporters to decide whether to vote if a runoff goes forward on Saturday, according to news agencies.
Abdullah said there would be no protests and urged his supporters "not to take to the streets, not to feel grief."
Abdullah said he quit because demands he had sought from the government and the IEC, including the removal of Afghanistan's top election official, had not been met.
He said he had not withdrawn from the race "in exchange for anything from anybody," but also said he would "leave the door open" for future discussions with Karzai, according to the Post.
The fact that Abdullah did not go so far as to call for a boycott the vote may signal that further talks are possible.
"As far as I'm concerned, the decision I have reached is not to participate," he told reporters. "I have strong, strong reservations about the credibility of the process."
News agencies reported that U.N. and U.S. negotiators had been working to negotiate a possible power-sharing deal between Karzai and Abdullah, and to address Abdullah's concerns about the staffing of the Afghan election commission.
The New York Times reported that Western diplomats were concerned that a withdrawal by Abdullah could lead to increased violence amid an already tenuous security situation in the country.
A weakened Afghan government would further complicate President Barack Obama's decision making on U.S. strategy for the region, as he weighs whether to send up to 40,000 more U.S. troops to fight a resurgent Taliban.
October was the deadliest month of the war for U.S. forces, with at least 57 American deaths.
Speaking on Saturday in Abu Dhabi, Secretary of State Hillary Clinton said in response to media reports that Mr. Abdullah might withdraw: "We see that happen in our own country where, for whatever combination of reasons, one of the candidates decides not to go forward."
"I don't think it has anything to do with the legitimacy of the election. It's a personal choice which may or may not be made," she said.
A statement issued by the U.S. Embassy in Kabul on Sunday said the U.S. government endorsed Abdullah's "emphasis on national unity" and that it would wait for the election panel's decision.
"As we wait for the Independent Election Commission to announce the next steps, the United States remains committed to supporting the Afghan people in carrying out a constitutional electoral process," the statement said.
---- Compiled from wire reports and other media sources