The Democratic politician, who has served as speaker twice and has been the first woman to hold the position, said this would not be her exit from politics, as she intends to remain in Congress.
US House of Representatives Speaker Nancy Pelosi, the first woman to hold the position, announced on Thursday that she will step down as the chamber's Democratic leader, as the party prepares to pass the torch to Representative Hakeem Jeffries.
The 82-year-old political veteran, who has served as speaker twice, affirmed that this would not be her exit from politics, as she intends to remain in Congress.
A California native, Pelosi will continue to represent San Francisco, as she has done for over three decades.
Pelosi made the announcement a day after Republicans secured a slim majority in the chamber following last week's midterm elections, where an expected conservative "red wave" failed to materialise and left the Senate under the Democrats' control.
In a statement, Democratic President Joe Biden called Pelosi "the most consequential speaker of the House of Representatives in our history."
Pelosi has played a central role in getting Biden's legislative agenda through Congress, as she did previously for Obama. She helped pass Obama's signature 2010 healthcare law as well as major expansions of infrastructure and climate spending under Biden.
She has also been a regular target of criticism from American conservatives, and has been under pressure from younger Democratic lawmakers to yield power.
As the outgoing speaker delivered her speech, she was enthusiastically applauded by her fellow party members.
Calling the House chamber "sacred ground," Pelosi recalled visiting the Capitol for the first time as a child when her father was sworn in as a House member.
She also recounted working with three American presidents - Republican George W. Bush and Democrats Barack Obama and Biden - but did not mention Republican President Donald Trump, who was impeached twice by the House under her leadership.
She did, nevertheless, allude to the 6 January 2021 attacks on the US Capitol by Trump's supporters.
"American democracy is majestic, but it is fragile. Many of us here have witnessed our fragility firsthand, tragically in this chamber. And so democracy must be forever defended from forces that wish it harm," Pelosi said.
The outgoing Speaker also noted the increase in women and minority lawmakers since she joined the House in 1987.
Pelosi's likely successor, New York's Hakeem Jeffries, would be the first black party leader in Congress. He has declined to say whether he would seek the role.