His resignation takes effect at the end of the week and follows extensive Austrian media reports about supposed slush fund payments to politicians and lobbyists during his time as chancellor.
The former head of the conservative Austrian People's Party (ÖVP), which now governs in a coalition with Social Democrats, told a hastily summoned news conference he did not acknowledge any wrongdoing but that an independent investigation into corruption allegations had to be free of any political influence.
"It is factually unjust and irresponsibile to link the ÖVP to the accusations that have arisen," he said.
Reportedly, prosescutors announced an investigation against former Vice-Chancellor Hubert Gorbach of the far-right Freedom Party (FPOe). Gorbach allegedly took money from partly state-owned Austria Telekom for formulating a law in the favour of the national telecoms provider.
Telekom Austria, in which the state has a 28% stake, commissioned an independent panel on Friday to look into allegations of improper payments and compliance shortfalls. It is due to issue its report next year.
Schüssel, 66, was chancellor from 2000 until 2007 under ÖVP coalitions with right-wing parties. He has been a regular member of parliament since 2008. His name was mentioned among the candidates for the job of permanent EU Council president, which EU leaders eventually gave to Herman Van Rompuy.
Former ÖVP Interior Minister Ernst Strasser is also among the names mentioned by the local press as accused of receiving millions of Euros by TA decision-makers or lobbyists cooperating with the company. Last March, Strasser resigned from his capacity of member of the European Parliament, after being trapped by British journalists for accepting money in exchange for tabling amendments to legislation being passed in the EU assembly.
EurActiv with Reuters