I would like to spend more time with my family - it's time for a change

Chief Secretary Anson Chan

Ms Chan, one of the most powerful women in Asia, is deputy to Chief Executive Tung Chee-hwa, who was hand-picked by Beijing.

She was appointed deputy leader in 1993 and was seen as a symbol of stability when Britain returned Hong Kong to China in 1997.

The UK government described her as an "outstanding" public servant.

Differences reported

"Because of personal reasons, I have decided to retire in April," Ms Chan told a press conference, adding that it was time "to make way for new blood".

Chan 'Rocky' relationship with Mr Tung

Her resignation comes less than 18 months before her term is due to end.

There have long been reports of differences between Mr Tung and Ms Chan.

But Ms Chan said she had "a good personal relationship" with her boss.

Mr Tung told the press conference he had tried to persuade Ms Chan to stay but could not change her mind.

He refused to name her successor, but it is widely expected to be Financial Secretary Donald Tsang.

China said on Friday it had "taken note" of the announcement but had "nothing more to say".

Analysts say there are fears the Hong Kong administration could lose some legitimacy in the international community as a result of Ms Chan's resignation.

The British Foreign Secretary, Robin Cook, said in a statement that Ms Chan was an outstanding public servant who "played a central role in Honk Kong's smooth transition to Chinese sovereignty".

Rebuke

Last year Ms Chan was publicly reprimanded by the authorities in Beijing for supposedly failing to back Mr Tung when his popularity dropped.

I could not change her mind and I have accepted her decision

Chief Executive Tung Chee-hwa

After she met Chinese Vice Premier Qian Qichen, state media quoted him as saying she should give "better support" to the embattled Tung.

Ms Chan, 60, described by the local media as "an iron fist in a velvet glove", was appointed to the deputy leader position by the last British governor of Hong Kong, Chris Patten.

She was the first Chinese head of Hong Kong's civil service after 150 years of British incumbents.

Her support for democracy, civil liberties and a credible legislature won her many admirers in the territory.

Shock

Lawmaker Emily Lau said she had heard that Ms Chan's relationship with her boss had deteriorated to the point that ''they were rowing almost every day''.

The relationship between Mr Tung and herself has been rocky

Legislator Emily Lau

''Ever since her disastrous visit to Beijing last September, there have been lots of rumours,'' added Ms Lau of the Frontier party.

Another lawmaker, Democrat Fred Li Wah-ming, described Ms Chan as ''a trusted and determined civil servant''.

''She has left in the middle of her contract. This is really a shock to Hong Kong's community. We really want to know what has happened,'' he told the South China Morning Post.