It follows weeks of speculation after the royal took medical leave, followed by online rumours and pictures purported to show him marrying a former Miss Moscow in Russian Federation.
The king resigned on Sunday after just two years on the throne, the first time a monarch has stepped down before completing their five-year tenure.
Malaysia is a constitutional monarchy and while the king assumes a largely ceremonial role, his assent is needed for the appointment of a prime minister and various other senior officials.
The palace statement said he was "ready to return home to the state of Kelantan to be together with the state government and. the Kelantanese people".
Malaysia has nine royal households, who typically take turns to sit on the throne, and the selection of the next king is decided by a vote in the Council of Rulers, made up of all nine royal households.
Comptroller of the royal household, Wan Ahmad Dahlan, told Channel NewsAsia that the 49-year-old king had officially notified the Malay rulers about his abdication through a letter sent to the secretary of the conference of rulers. The Agong - or "king of kings" - is appointed to a five-year stint in the position, which he rotates with the other sultans, by the Conference of Rulers.
Muhammad V is the first monarch to abdicate the throne since the Muslim-majority country gained independence from Britain in 1957.
"Tunku Abdullah could take his father's place and at the same time, prepare him to become the Sultan", he explained. Foreign media reports said he had married a Russian beauty queen while he was away from the national office - though neither he nor the palace ever confirmed this. It follows weeks of speculation that the ruler would step down.
"In discharging the wishes of His Majesty Yang di-Pertuan Agong Sultan Muhammad V, Istana Negara hereby announces that His Majesty is abdicating as the 15th Yang di-Pertuan Agong effective Jan 6, 2019, pursuant to Article 32 (3) of the Federal Constitution", he said in a statement here.
Political scientist Awang Azman Awang Pawi of University Malaya's Institute of Malay Studies said the sudden abdication would not pose a threat to the Pakatan Harapan government's stability.
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