POPE Benedict XVI has announced he will resign due to old age, in a move that has stunned the world.

He will become the first pontiff in 700 years to step down because he can no longer fulfil his duties.

The German-born leader of the world's 1.1 billion Catholics said he would resign on February 28 after just eight years as pope, making his one of the shortest pontificates in modern history.

The 85-year old pontiff made the announcement in a speech in Latin at a meeting with world cardinals in his residence in the Apostolic Palace, dressed in red vestments and with his voice barely audible as he read a written text.

"I have come to the certainty that my strengths, due to an advanced age, are no longer suited to an adequate exercise of the Petrine ministry," he said.

As tributes poured in from across the world, the Vatican emphasised that the former Joseph Ratzinger was not resigning due to any illness, following speculation over his frail appearance at recent ceremonies.

Vatican spokesman Federico Lombardi said he expected a conclave of cardinals to be held in March within 15 or 20 days of the resignation and a new pope elected before Easter Sunday on March 31.

"The Pope caught us a bit by surprise," Lombardi said at a hastily arranged press conference.

Benedict's brother, Georg Ratzinger, said he had known "for a few months" that he was planning to resign and was "feeling the burden of his age".

"It is a positive thing that he is handing over the office to younger hands," he said.

Some faithful said they hoped the move would signal a major change for the church after a conservative pontificate that has been marred by scandals, including most notably clerical child abuse.

Vatican observers have already begun speculating over who could succeed Benedict, with online betters tipping an African pope as the most likely.

The resignation has surprised the Archbishop of Sydney, George Pell, who says the world's leading Catholic always worked to do what was best for the church.

Cardinal Pell, who will travel to Rome to take part in the election of a new pope, said the church would pray for Pope Benedict as he enters retirement.

"His resignation came as a surprise to me," he said.

"We thank him for his years of devoted leadership and service and his brilliant teaching."

Prime Minister Julia Gillard said the resignation of Pope Benedict XVI marked a historic moment which many Australian Catholics would greet with great emotion.

"Australia's Catholics and their many friends received remarkable news overnight that Pope Benedict XVI will resign in coming weeks," Ms Gillard said in a statement.

"The Pope's announcement marks a genuinely historic moment which many Australian Catholics will greet with great emotion.

"On his election, Joseph Ratzinger said he wished to be `a simple humble worker in the vineyard of the Lord' and in his resignation that humility has been amply demonstrated."