German President Christian Wulff has announced his resignation, after prosecutors called for his immunity to be lifted.

An ally of Chancellor Angela Merkel, Mr Wulff is embroiled in a scandal over a home loan that he accepted when he was premier of Lower Saxony.

Mrs Merkel cancelled a visit to Italy on Friday to deal with the crisis, and said she regretted that he had quit.

German media say the crisis is unprecedented in post-war Germany.

Mrs Merkel had fought to get Mr Wulff, an ally in her centre-right Christian Democrat party (CDU), appointed as president. He had been in the job for less than two years.

She said she accepted his resignation "with respect but also with regret".

"He dedicated himself to the interests of Germany," she said in a brief statement at 10:30 GMT, shortly after his announcement on Friday.

She said Mr Wulff was convinced he had "acted legally correctly" but was "stepping back from the office, from service to our people".

Germany's political parties will now seek to agree on a new candidate for president, she said.

In the interim, Horst Seehofer of the Christian Social Union (CSU), the Bavarian sister party of the CDU, will be acting president.

The president's role is largely ceremonial, to serve as a moral authority for the nation. Mr Wulff denies any wrongdoing.

The BBC's Berlin correspondent Stephen Evans says the affair is just a headache for Mrs Merkel, whose approval rating is high among the German people.

However, she does not need any new headaches as Germany wrestles with the eurozone debt crisis, our correspondent adds.

"The developments of the past few days and weeks have shown that (the German people's) trust and thus my effectiveness have been seriously damaged," Mr Wulff said in a brief statement.

"For this reason it is no longer possible for me to exercise the office of president at home and abroad as required."

Controversial loan