The nomination means Lagarde will step down two years before the end of her second five-year term at the helm of the IMF, which will open a search for her replacement.
The fund's executive board met Tuesday and named American economist David Lipton, Lagarde's chief deputy, as interim leader of the institution.
"We accept Ms Lagarde's decision to relinquish her IMF responsibilities temporarily during the nomination period," the board said in a statement.
"We have full confidence in First Deputy Managing Director David Lipton as Acting Managing Director of the IMF." By tradition, since the institutions were created in the wake of World War II, a European has always led the IMF and an American has been at the helm of the World Bank, although emerging market nations in recent years have pressed for more representation.
When Lagarde was selected in 2011, it was the first time the fund had an open leadership search process, in which any board member or country representative could nominate a candidate. Lagarde was selected over Agustin Carstens, then the head of the Mexican central bank.
She has drawn praise for her role leading the IMF in the wake of the global financial crisis.
"She's been a tremendous ambassador for the fund, a great salesperson, a very good communicator," said Mark Sobel, a former US Treasury official and chairman of the Official Monetary and Financial Institutions Forum.
He told AFP that Lagarde has experience in monetary policy even if she has never led a central bank and, like US Federal Reserve Chairman Jerome Powell, is not an economist.
"She's been involved in all the monetary debate and it's not like they don't discuss monetary policy at the fund." Her second term in office coincided with the rise of US President Donald Trump and a wave of confrontations among major economies over trade, which the former French finance minister described as the major threat to the world economy.
Lagarde has at the same time acknowledged the strains caused by globalization, which has disrupted industries and marginalized some workers.
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