"The government of Prime Minister Rami Hamdallah submitted on Tuesday its resignation to President Mahmud Abbas," official news agency Wafa said in English following a cabinet meeting.
The government "will continue to serve our people wherever they are and shoulder all its responsibilities until a new government is formed," it added.
It was unclear how the change of government could impact on policy. Secularist Abbas remains the primary decision maker and interlocutor with the international community.
Palestinian politics has essentially been paralysed since 2007, when Islamist group Hamas seized control of the Gaza Strip from Abbas's forces in a near civil war, a year after winning parliamentary elections.
Since then Abbas's governments have maintained limited self-rule in the occupied West Bank, while Hamas has led a rival government in the strip.
Israel and Hamas, which is considered a terrorist organisation by the United States, the European Union and others, have since fought three wars in Gaza.
The division between the Palestinian parties is seen as a key issue preventing progress in solving the Israeli-Palestinian conflict and improving the situation in the impoverished enclave.
Hamdallah's government has also faced major street protests over a proposed social security law that would have forced private employers and employees to pay into a government-managed fund.
Protesters said they did not trust the Palestinian government to manage the fund and Abbas issued a decision scrapping the proposal late Monday.
Multiple attempts to reach a reconciliation agreement between Fatah and Hamas have failed.