After Karzai snubbed a series of demands promoted by his rival as a chance to avoid a repeat of massive first-round fraud, Abdullah said he saw no point in standing, but stopped short of calling for a boycott.
The Independent Election Commission (IEC), whose leaders were appointed by Karzai, said the run-off would take place as scheduled on November 7.
But Karzai opened the door to a possible solution in the courts and a UN spokesman conceded it was "difficult to see" how an election could take place with just one candidate, particularly given the volatile security situation.
The Taliban, the Islamist militia behind a raging insurgency, threatened to carry out new attacks if the election takes place and analysts predicted any ballot would be hampered by even lower turnout than August's 38.7 percent.
"In protest against the misconduct of the government and the Independent Election Commission, I will not participate in the election," Abdullah told supporters during an emotional and lengthy address in Kabul.
The former eye surgeon, whose powerbase is concentrated in the north and who has campaigned for political reform, launched a scathing attack on the "eight years of lost opportunities" during Karzai's rule.
Appearing to dim prospects the rivals could yet agree on a power-sharing deal, he later held out the possibility of coming to some agreement with his rival during an interview with Britain's Sky News.
"Whether there is a prospect of working or not with Mr Karzai, I'll leave it (for now). I think it's too early a stage," he said.
Following widespread fraud in the first round on August 20, Abdullah demanded Karzai sack the IEC's head, Azizullah Ludin, and suspend four ministers who campaigned for the incumbent.
Snubbing his demands, but reacting to the withdrawal, Karzai's office said the president "regretted" the move but would "be obliged to follow" any ruling on the run-off from the election commission or the courts.
IEC chief electoral officer Daoud Ali Najafi said it was too late for Abdullah's name to be struck from ballot papers.
"We'll go for a run-off as scheduled," he said.
Insistent the fraud had been overstated, Karzai only agreed to a run-off under extensive diplomatic pressure.
But US Secretary of State Hillary Clinton said it was now up to the Afghan authorities "to decide on a way ahead that brings this electoral process to a conclusion in line with the Afghan constitution.
"We will support the next president and the people of Afghanistan, who seek and deserve a better future."
Republican Representative Duncan Hunter, who sits on the House Armed Services Committee, told AFP the troubled run-off was of "very little importance" to US-led efforts in Afghanistan.
"The real question is 'what's Karzai going to do," notably in terms of battling government corruption and filling key posts with trustworthy people, said Hunter. "Karzai needs to step up."
British Prime Minister Gordon Brown said he phoned Karzai after Abdullah's announcement.
"Dr Abdullah has pulled out of the election in the interests of national unity. I talked to President Karzai today and he wants to issue a manifesto, that is a unity manifesto, an inclusive manifesto for the Afghan people," Brown said.
"It's difficult to see how you can have a run-off with only one candidate, UN spokesman Aleem Siddique told AFP.
A senior European diplomat said the supreme court, whose members are Karzai appointees, would have to decide whether to hold a run-off.
"There is no provision in the Afghan constitution for a candidate withdrawing from a run-off and in such an event the supreme court will have to make a ruling," the diplomat said.
White House adviser David Axelrod said Abdullah's pullout "doesn't markedly change the situation" as US President Barack Obama decides whether to send tens of thousands more troops to combat the Taliban.
Taliban attacks were a major factor in a turnout as low as five percent in some areas in the August vote and the group vowed more of the same if the second round goes ahead.
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