Rabuka made the announcement while delivering his response to the opening address by the President Jioji Konrote in Parliament this morning.
The former Social Democratic Liberal Party (SODELPA) leader said his resignation as a member of Parliament would make way for the president to ask the prime minister to work with the new leader of the opposition and members of the opposition.
Opposition whip Lynda Tabuya said she supported Rabuka's move.
Rabuka and Tabuya had both contested the party leader and deputy positions last week respectively but lost.
Nadroga MP Viliame Gavoka and Suva lawyer Filimoni Vosarogo won the leadership contest.
Rabuka said he could not continue as opposition leader and an MP because the prime minister did not trust him enough to work with him.
He urged the government to work with the Gavoka and members of the opposition to take the country forward.
"I hereby, Mr speaker sir, tender my resignation as a member of this House representing the people of Fiji to make way for his excellency the president.
"I ask the prime minister work with the new leader of opposition and the members of the opposition and take us forward.
"I will no longer be an obstacle to the bipartisan approach to be taken by the leaders of Fiji to create harmony and progress and unity in Fiji and I with respect, Mr speaker sir, tender my resignation from Parliament, thank you sir."
Rabuka urged all SODELPA supporters to continue to remain loyal to the party.