Ukrainian President Viktor Yanukovich accepted the resignation of the country's Prime Minister Mykola Azarov and his government on Tuesday, according to a presidential decree on the president's website.
Yanukovich has asked for all ministers in the outgoing government to stay on in their respective roles until a new cabinet had been formed, Reuters reported.
Earlier in the day, Azarov offered his resignation due to the threat to the economy caused by two months of unrest.
Azarov said he had personally asked Yanukovich to accept his resignation "for the sake of a peaceful settlement" to conflict in the country.
The resignation comes amid fears that the country could be plunged into civil war, and the acceptance of it by Yanukovich may not immediately calm tensions in Ukraine.
Many protestors are calling for Yanukovich to resign, but the president shows no signs of conceding defeat, a factor that could stoke more resentment and violence, argued Ian Bremmer, the president of the Eurasia Group warned.
"If Yanukovich does not actually step down and call for early elections I think the potential for violence expanding dramatically is really there," he told CNBC Europe's "Squawk Box."
"Ukraine is a country divided right down the middle between the West which is oriented towards Europe and the South-East which is very oriented towards Russia. Kiev really is split so the potential for war here is very real," Bremmer continued.
His comments come as efforts to resolve the escalating conflict between the authorities and anti-government protesters are ramped up.
On Monday, Yanukovich met leaders of the opposition in an attempt to resolve the crisis and offered to scrap anti-protest laws which have inflamed anger at the government.
The Ukrainian government is set to vote on whether to repeal laws that have placed restrictions on protests on Tuesday but it's unclear whether members of parliament will back the president's offer to scrap the legislation.
Timothy Ash, head of emerging market research at Standard Bank, said that Prime Minister Azarov's resignation was not entirely surprising given that Yanukovich had offered the job to a member of the opposition over the weekend but the "problem now is finding someone to fill his shoes."
"The opposition seem very unwilling to take up the poison chalice of the PM's post without early elections [and] is still holding out for Yanukovich's resignation. So there still lots of questions where this crisis goes from here."
Ukraine's protests have been fueled largely by pro-European groups who are angry that the president has erred towards Russia in terms of politics and economic aid.
(Read more: Europe must not abandon Ukraine: Opposition leader)
The Ukraine was given $15 billion in aid from Russia in December after President Yanukovich scrapped a trade deal with the European Union (EU), a move which ignited the protests.