Mariano Rajoy addressed the nation to say there would be an amendment to the constitution so the 46-year-old Crown Prince could take the throne. The 76-year-old king, who oversaw his country's transition from dictatorship to democracy, has had health problems in recent years.
In the last few years the monarchy has been hit by scandals including a furore over an elephant-hunting trip Juan Carlos took during the financial crisis. In the last few months, his daughter, the Infanta Cristina, has appeared in court to face questions over financial allegations surrounding her husband.
His abdication comes a year after a similar move by the Dutch former Queen Beatrix, who stood aside to allow her son Crown Prince Willem-Alexander to take the throne.
That abdication prompted speculation that Queen Elizabeth II may do something similar.
Mr Rajoy said that Juan Carlos, who has had a number of hip operations in recent years, is stepping down for personal reasons.
As he has aged, he has become increasingly unsteady on his feet.
The date that the abdication will take place has yet to be announced. Queen Beatrix's handover came about three months after the announcement was made.
The king came to power in 1975, two days after the death of the dictator Francisco Franco, who won a bloody civil war in the late 1930s.
Juan Carlos oversaw the maturing of Spain's democracy following the death of Franco, as it joined the EU and stayed united despite major separatist movements in Catalonia and the Basque region.
In last week's EU Parliamentary elections, Catalonia's separatist party won the biggest share of the vote in the autonomous community.
The king came to power in 1975, two days after the death of the dictator Francisco Franco, who won a bloody civil war in the late 1930s.
Juan Carlos oversaw the maturing of Spain's democracy following the death of Franco, as it joined the EU and stayed united despite major separatist movements in Catalonia and the Basque region.
In last week's EU Parliamentary elections, Catalonia's separatist party won the biggest share of the vote in the autonomous community.
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