With Rick Parry revealing that a new manager could be installed in two weeks time, Benitez is hotly-tipped to replace Gerard Houllier at Anfield for the next campaign.
Benitez said: "This is possibly one of the most difficult decisions I've had to make in my sporting life. I am not going to continue.
"I want to value as positive the efforts of the club to renew my contract, but the efforts of the last season and the physical and psychological effects on me have made me consider my future.
"We are going to analyse the future in the next few days to make the best possible decision.
"Personally I want to thank everyone, the players and the employees of the club, the media and especially the fans for their support..."