The move was seen as a strategic shift that leaves him clear to lead his party, riding a wave of public disgust with mainstream politicians, into battle in the general election this year.
Only 49 days after his upstart Aam Aadmi (Common Man) Party took power in the capital, Kejriwal resigned on Friday night when the country's two main parties combined to thwart his efforts to bring in a new anti-corruption bill.
Kejriwal, whose stunning breakthrough in the Delhi state elections in December highlighted public anger at the political establishment, launched a blistering assault on Prime Minister Manmohan Singh's Congress party and the Bharatiya Janata Party (BJP) in his resignation speech.
Newspapers said his decision to quit so soon after taking power appeared part of a wider strategy that would free Kejriwal to lead his party's campaign in a general election due by May.
The anti-corruption bill was the main plank of Kejriwal's manifesto in the Delhi state election, the first campaign that his party had ever fought.
Although Aam Aadmi only won 28 of the 70 assembly seats, it was able to take power after Congress agreed to give it backing from outside.
However Congress refused to support the Jan Lokpal bill, which included plans to set up an anti-corruption commission, in a vote on Friday on procedural grounds.
In his speech to supporters on Friday, the 45-year-old former tax inspector accused Congress of reneging on an earlier promise to back the bill.
"Congress had promised us, in writing, that they would support the bill but when we tried to present it before the assembly today both they and the BJP came together to block it," Kejriwal said.
"This is the first time in India's history that both the BJP and Congress have come together. ... They have exposed themselves and shown their true face."
He also accused the two parties of taking orders from Mukesh Ambani, India's wealthiest man who heads the giant Reliance Industries conglomerate.
The BJP is expected to win the national polls, but it will need support from smaller parties to clinch victory.
Although Kejriwal formed his party only a year ago, its remarkable showing in the Delhi election shocked the political establishment.
Congress, which has been badly damaged by a series of corruption scandals at national level, saw its number of seats slashed from 43 to just eight.
Aam Aadmi has said it plans to contest the national elections although analysts say it is unlikely to win much support outside major cities such as Delhi and Mumbai due to its lack of infrastructure and funding.
Newspapers said that Kejriwal's resignation represented something of a gamble for his party, with many of the voters who backed him in December unhappy at his decision to walk so soon.
The Hindustan Times said: "The decision to quit is part of AAP's bigger strategy.
"It hopes to paint the Congress and BJP as the villains of the piece who did not let his government fulfill its promises, and is banking on the people to bring it back to power on its own."
During his administration's brief time in office, Kejriwal introduced a series of headline-grabbing initiatives, including a graft hotline aimed at stemming the rampant corruption of police and bureaucrats.
After shunning the usual official car and instead taking the subway to his swearing-in ceremony, he then slashed electricity costs and announced free water supplies.
But while his elevation to one of the most important political posts in India was initially widely welcomed as a much-needed shock to the system, Kejriwal has since come in for criticism over a series of stand-offs with the authorities.
The self-styled "anarchist" staged a sit-in on the pavement close to parliament last month, triggering chaos in the city centre, as part of a push to be given greater powers of control over the police.
In Delhi, the BJP will be given the opportunity to form an administration before any decision is made on holding fresh elections.