John Howard turns 64 in July

Mr Howard, who had previously indicated that he might step down when he turns 64 on 26 July, said he had given a lot of thought to his future and would always put his "loyal and generous" Liberal Party first.

Members of the ruling party had reportedly urged the veteran politician to stay on, given his surging popularity.

The announcement dashed the hopes of Mr Howard's deputy, Treasurer Peter Costello, who had expected to take the leader's place.

I have given a lot of thought to my future - the Liberal Party has been very loyal and generous to me, I'll always put it first John Howard

Mr Howard won rapturous applause when he announced his decision to a caucus meeting in Canberra's Parliament House, the French news agency AFP reported.

"While ever it remains in the party's best interests and my colleagues want me to, I'd be honoured to continue as leader," he said.

Mr Costello admitted that Monday, when Mr Howard told him of his decision, "wasn't my happiest day".

Opposition's Treasury spokesman Bob McMullan said: "I think I've not seen a more unhappy deputy of a political party for a very long time, perhaps forever."

Mr Howard's popularity surged during the Iraqi war campaign, which left no Australian casualties, and it has not been affected by a recent scandal involving the country's Governor-General, Peter Hollingworth.

A poll published on Tuesday by The Australian showed that Mr Howard is enjoying a record 48 point lead over opposition leader Simon Crean as preferred prime minister.