The announcement came amid royal moves for the country, nestled between Asian giants India and China, to change to a constitutional from absolute monarchy.

"I am confident that a very bright future lies ahead for Bhutan with the leadership of a new king and a democratic system of government," the outgoing king said in the web edition of the state-run newspaper Kuensel.

King Wangchuk, 51, declared a year ago he would abdicate in 2008, when the country is slated to hold its first elections in the mountainous country known as a Shangri-la of breathtaking beauty.

The king is most famous for having decided to make his isolated mountain nation's priority not its GDP, but its GNH -- or "gross national happiness".

The newspaper report gave no explanation why the abdication had come earlier than expected. But Indian news reports said the king decided to step down to allow the 26-year-old crown prince time to gain more political exposure.

"His Majesty Jigme Singye Wangchuck has handed over his responsibilities as the monarch and head of state of Bhutan to the Crown Prince Jigme Khesar Namgyel Wangchuck," the newspaper said on its web site.

The crown prince, who studied at Britain's Oxford University, "now assumes full responsibilities of head of state," the newpaper said.

The decision shocked the 600,000 citizens of the kingdom, which also calls itself the "Land of the Thunder Dragon".

"The announcement has been greeted with shock and disbelief as nobody expected the handing over of power to the crown prince so early," U. Dorjee, a businessman in the capital Thimphu, told AFP by telephone.

Cabinet members and guests present as the king made the announcement Thursday" were overcome by emotion and sat in a long and stunned silence," the newspaper reported.

The new king will be the fifth ruler in the Wangchuck dynasty that came to power in December 1907.

"King Wangchuk has abdicated," a senior Bhutanese foreign ministry official who asked not to be identified said by telephone to an AFP correspondent in Guwahati, the main city in India's Assam state which borders Bhutan.

"There was no official coronation ceremony for the new king. Maybe a formal ceremony will take place later," the official said.

The king had ruled Bhutan since ascending the throne in 1972 at 17.

"The best time to change a political system is when the country enjoys stability and peace," the king said when he announced in 2005 his plans to abdicate.

"Why wait for a revolution? Why crown an heir only when the nation is in mourning for a late king?"

The transition to a constitutional monarchy began five years ago when the king handed over the powers of daily government to a council of ministers.

Bhutan unveiled in 2005 a 34-point constitution which has been sent to its citizens for their views. Once adopted, it will replace a royal decree giving the monarch absolute power.

Although the Bhutanese were surprised by the king's dramatic announcement, the crown prince, the eldest of the king's five sons and five daughters, is also said to be popular.

However, officials have said even after Bhutan becomes a constitutional monarchy and elects a prime minister, the king will continue to play a "watchdog" role.

Agence France-Presse