The decision came a day before the People's Democratic Reform Committee's (PDRC) nationwide march is supposed to start. Today is its "final battle" to topple the government and get rid of the so-called "Thaksin regime".
Speaking at a press conference, Democrat leader Abhisit Vejjajiva said the party decided it could no longer wait for the government to take responsibility for what it had done.
Mr Abhisit said the Pheu Thai MPs never took responsibility for passing the controversial blanket amnesty bill and even defied the Constitution Court's ruling on the charter amendment involving the make-up of the Senate.
He said that the mass resignation of his party's 153 MPs was to "reaffirm" the lack of legitimacy of the House which betrayed the public trust.
The resignation of the party MPs, which took immediate effect, was to maintain high standards, he said.
"When trust is lost ... the constitution is violated, parliament must take responsibility. Parliament should not be taken hostage to let the government stay in power," he said.
He said the party members and ex-MPs would join in today's protest as ordinary people.
He insisted the party would not accept political positions if they were not in line with the constitution and parliamentary system.
In response, executives of the govenrment coalition parties _ Pheu Thai, Chartthaipattana, Chart Pattana Party and Palang Chon _ met yesterday evening to discuss the Democrats' move.
They resolved that the coalition parties would observe Ms Yingluck's stance yesterday and insisted the political impasse must be dealt with on the basis of the law.
They also asked the anti-government protesters who are expected to converge around Government House today to come unarmed.
Ms Yingluck yesterday repeatedly insisted she won't resign or dissolve the House unless a new election is called in line with the constitution.
Academics regard the Democrats' move as a last-ditch attempt to oust the government.
Political scientist Nakharin Mektrairat said the Democrat Party's move would make House dissolution inevitable.
He said the mass resignations would cost the House of Representatives its legitimacy.
Wanwichit Boonprong, a political science academic of Rangsit University, said the move seems to be a final attempt by the party to force the government and the prime minister to dissolve the House and leave power.
The party believed the resignations would lead to a government shutdown.
However, Mr Wanwichit believed the government might be able to sustain itself for some time, at least until early next year, because the Bhumjaithai Party will still be the opposition in parliament and some factions in Bhumjaithai support the government.
In the best case scenario, the government might survive until a referendum on Mr Suthep's proposed people's council is concluded, if it is conducted.
The political scientist described the Democrats' move as an attempt to justify the protest movements, and argue that this parliament and government have lacked legitimacy.
Wutthisak Larpcharoensap, rector of Ramkhamhaeng University, said the Democrats' resignations can further weaken the legitimacy of the government and the House.
Mr Suthep last night promised the demonstrators they would not go home empty-handed after today's march.
Mr Suthep said the protesters should pack for an extended stay as they would not leave until it ends.
"Bangkok will be paralysed. Be prepared to spend the night on the street. We won't go home until it ends," he said.
Mr Suthep said he will declare the people's powers on behalf of the anti-government protesters.
Meanwhile, army chief Prayuth Chan-ocha assured the army would not stage a coup.
"I would like everyone to be patient and find a peaceful way out. A coup would only lead to further problems. How can the country stand in society's eyes if a coup happens? Everyone is patriotic but they need to get together," Gen Prayuth said.