Official Palestinian news agency Wafa said the president accepted Mr Fayyad's resignation after they met in person.
But he asked him to remain as caretaker until a new government is formed.
Mr Fayyad's resignation is a major blow for US efforts to restart the long-stalled peace process with Israel.
His resignation is the climax of long-running and increasingly bitter dispute between the prime minister and the president.
They have been at odds over economic policy since Finance Minister Nabil Kassis quit last month, and rumours were rife that Mr Fayyad would step down.
Mr Fayyad accepted Mr Kassis's resignation, but he was subsequently overruled by Mr Abbas, challenging his authority.
Source: BBC News
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