In a televised address Tuesday morning, Thabane said the time for him to retire "from the great theater of action, take leave from public office" had come.
The official resignation comes after the 80-year-old Thabane repeatedly said that he would retire.
Both the Prime Minister and his wife have not spoken publicly about the allegations, but for months the tiny mountain kingdom has been roiled by the scandal.
"When I made a voluntary announcement in January this year to retire from office on or before 31 July, I did so with all sincerity because of my full conviction and belief that to everything, there is a season; a time to be born and a time to die, a time to plant and a time to pluck up that which is planted," he said, quoting scripture.
He will be replaced by his finance minister Moeketsi Majoro who will be inaugurated Wednesday.