Mercedes driver Michael Schumacher, right, of Germany sits with teammate Norbert Haug, left, during a news conference to announce his retirement from Formula One at the end of the 2012 season at the Suzuka Circuit venue for the Japanese Formula One Grand Prix in Suzuka, Japan. AP Photo
"I decided to retire by the end of the year 2012. At some point, it is time to say 'good bye'. I still feel I am capable of competing against the best but the time sometimes comes to say goodbye and this time it might be forever," he said at the Mercedes AMG Petronas F1 team motorhome.
"I had been thinking about whether I had the necessary motivation to carry on but I do not want to do something I am not 100 per cent committed to. Having made the decision I now feel a release," the 43-year-old German champion added.
Schumacher's first stint in F1, between 1991 and 2006, saw him enter the sport's record books, winning seven world titles and 91 races.
He dominated the F1 world at the start of 20th century when he won five world titles in a row from 2000-2004.
Schumacher made his debut at the Belgium Grand Prix in 1991 and won 91 GPs in his career. He first retired in 2006 but made a comeback with the Mercedes team in 2010.
Schumacher will be remembered for helping revive Ferrari's fortunes after joining the Prancing Horse in 1996 as part of the 'Dream Team' along with Ross Brawn, Jean Todt, Rory Byrne and Paolo Martinelli, winning five straight titles between 2000 and 2004.
However, in his return to the sport Schumacher has taken just one podium finish over the last three seasons, that result coming at Valencia earlier this year.
The German, who was described by Brawn as the 'greatest racer of all time', said he wants to concentrate till the end of the season and win some more races with the Mercedes.
He also thanked all friends, partners, team members and engineers who have put in so much work and dedication to give him the freedom to continue his career.
He said his "focus is 200% on the future" and still has some options but did not elaborate.
He referred to 2006 and continued," In 2006, my battery was empty. I thought it would be recharged. I went at the time for a sabbatical. Today I noticed it is not possible to enjoy racing without loosing the focus."