After surviving a no-confidence vote in June, Kan said he would quit on condition that three key bills were passed. These are a second budget, a budget financing bill and legislation promoting the use of renewable energy.
The final two bills were passed on Friday, clearing the way for him to resign.
Up to nine candidates are lined up to succeed Kan, including the favourite, former Foreign Minister Seiji Maehara. Finance Minister Yoshihiko Noda may also file for candidacy when campaigning begins on Saturday.
The new prime minister faces the task of overseeing Japan's biggest post-war reconstruction, resolving of the world's worst nuclear crisis since Chernobyl 25 years ago and shielding the economy from a soaring yen.
They also need to unite a divided parliament and win market confidence that Japan can overcome a legislative quagmire to address the world's biggest debt.
Earlier this week, ratings agency Moody's downgraded Japan, citing its revolving-door political leadership as a major obstacle to much needed reform.
After taking office in June last year, the 64-year-old Kan struggled amid low support ratings, a power struggle within the DPJ and a divided parliament in which the Liberal Democratic Party opposition blocked various bills.
Japan's triple disaster, which left 20,000 dead or missing, tested his leadership and led to accusations that he bungled the response to the calamity.