Political commentators said the statement from Muluzi was as good as an official declaration that he would step down as head of state, despite his controversial attempt to amend the constitution to allow him a third term.
Muluzi's second five-year mandate expires next year.
A statement issued by Muluzi Sunday said the national executive committee of his ruling party had named Economic Planning Minister Bingu wa Mutharika "as a candidate to stand on the United Democratic Front (UDF) ticket in the 2004 presidential elections".
The cabinet had also proposed Mutharika as a candidate, the statement said.
The Malawian leader said that Mutharika had been unanimously elected at an emergency UDF meeting on Saturday, beating veteran politicians Aleke Banda and Harry Thomson to the post.
Mutharika, 69, picked another senior party member, Cassim Chilumpha to be his deputy. Muluzi said the committee and cabinet had accepted his choice.
Muluzi, who has received harsh criticism at home and abroad for attempting to prolong his stay in power, said the succession issue was thoroughly discussed at Saturday's meeting held at his official residence outside Blantyre, the commercial capital.
"Every member was given an opportunity to speak his or her mind.
And those who wanted to stand as presidential candidates on the UDF ticket were given an opportunity to declare their interest," he said.
Multi-party elections at all levels of government are due to be held in May next year.
Muluzi said with about 13 months to the poll, it was "very necessary to tell the nation the way forward to ensure a smooth and proper transition for a successful 2004 elections." Mutharika is expected to be endorsed by a party convention scheduled for next month.
Mutharika is a former secretary general of the Common Market for Eastern and Southern Africa (COMESA), a regional trading bloc. Like Muluzi, he comes from southern Malawi - Sapa-AFP
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