"I am giving up my presidential candidacy," Ahn said in a hurriedly arranged news conference in Seoul. "From now on, Moon Jae-in is the single liberal candidate."
The abrupt announcement came shortly after the two candidates failed to narrow differences on how to set the rules for merging candidacies. Ahn and Moon had been under intense negotiations to unify their campaigns to defeat Park.
"My last proposal for arbitration failed to lead to an agreement. Locking horns over the method of merging candidacies is not righteous for the people anymore," a teary-eyed Ahn said, but added that he will "serve in a war as a commoner" to create "new politics."
"Although my dream for new politics will be delayed for a while, Ahn Cheol-soo is really longing for a new era and new politics," Ahn said.
Representatives of Moon and Ahn had made last-ditch efforts earlier in the day to finalize the format of a selection survey to field a single candidate, but no agreement was reached.
Shortly after Ahn's announcement to end his campaign, Moon wrote on Twitter that he was "truly sorry for Ahn and people who are backing Ahn."
Ahn Hyung-hwan, a spokesman at Park's election camp, expressed "regrets" over the departure of the independent presidential candidate.
"It appears that efforts by Ahn Cheol-soo for the experiment of political overhaul have floundered, hindered by the wall of old-style politics of the Democratic United Party," the spokesman told reporters.
"The Saenuri Party and Park Geun-hye will further devote themselves for political overhaul and national unity," the spokesman said.
With four days to go until the agreed merger deadline, the election camp of Ahn on Thursday proposed a nationwide survey that would have put equal weight on popular support for Ahn and Moon and an assessment of who is more likely to defeat conservative front-runner Park in the Dec. 19 election.
Ahn, a 50-year-old software mogul-turned-politician, and Moon, a former human rights lawyer who served as chief of staff to the late President Roh Moo-hyun, held one-on-one talks Thursday before coming up with their respective proposals, but failed to narrow their differences.
Ahn had argued the poll should ask respondents to choose which of them has a better chance against the 60-year-old Park, while Moon insisted on picking the better leader for the liberal camp.
Recent polls showed the former method gave Ahn the upper hand while the latter favored Moon.
In the event of a three-way race, the two liberals were widely expected to split the opposition vote and hand a victory to Park. As a daughter of the late authoritarian President Park Chung-hee, the ruling party candidate enjoys strong support from conservatives and the older generation.
Experts showed a mixed response on how Ahn's departure from the race would affect the upcoming election.
Hahm Sung-deuk, a politics professor of Korea University, said Ahn's decision will have a "big impact" ahead of the Dec. 19 vote.
"So far, there has been a sense of fatigue over the unified candidate. But, it has disappeared in one stroke," Hahm told Yonhap News Agency by telephone.
But, Shin Yul, a political science professor at Myongji University, said Ahn's decision was "too late."
"People who support Ahn will become swing voters, and I think that about 40 percent of voters that are conservative-centrist will support Park," Shin said.