President Kersti Kaljulaid now has 14 days to name a new prime minister who would then have to be approved by parliament.
“Today, I made a decision to resign as prime minister, Ratas, who is the chairman of the party, said in a Facebook post following an hours-long party board meeting.
Ratas said he hoped his resignation would help shed light on all the circumstances and reach clarity.
The 42-year-old insisted that he had not made any malicious or knowingly wrong decisions.
The investigation centres around a property company called Porto Franco which received a large state loan and struck a lucrative deal with city authorities in the capital Tallinn whose mayor is also from the party.
The owner of the company’s father, businessman Hillar Teder, donated large sums to the center party.
“As head of government, I did not feel in the case of Porto Franco that any minister or party had tried to sway the government’s decisions in an illegal direction, Ratas said in his statement.
Among other suspects in the corruption investigation is Kersti Kracht, an adviser to finance minister Martin Helme from the far-right EKRE party.
Ratas resignation could scupper plans for a controversial same-sex marriage referendum that the coalition government had been planning to hold this spring.
Ratas, prime minister since late 2016, lost the 2019 general election, in which the center-right reform party emerged as the largest party.
He then blocked the winner from taking power by forming a surprise coalition of his left-leaning center party, the conservative Fatherland party and EKRE that gave the three parties a majority in parliament.