Speaking at a press conference on Tuesday afternoon, Ohly cited the party's poor election result and enduring lowly poll results as the background to his decision not to run for re-election.
"The opinion polls have not gone very well. And furthermore several candidates have reported their interest, those I see as good candidates and that makes the decision easier," Ohly said.
After the press conference Ohly was asked what he sees as the biggest mistake he has made during his time as party leader.
"It was trying to turn the term 'communism' and make the public associate it with its original meaning rather than the practice shaped for example by the Soviet Union. It was a mistake and I still regret that," he said.
Regarding successes, Ohly feels that he has contributed to unifying the party.
"The party is considerably more united than when I took over in 2004. Then there was what must be seen as fractions within the party. This is an achievement we should safeguard," Ohly said.
Ohly has been the Left Party's leader since 2004, taking over the role from predecessor Ulla Hoffman. Before that he was party secretary for a number of years.
Ohly claimed on Tuesday that he leaves a Left Party more united than the one he took over in 2004 and tipped the party to be involved in the formation of a government in the future.
"We will be a government party sooner or later."
Pressure had been building on Lars Ohly to step aside for some time but in July, when faced with the news that over half of the district leaders wanted him to resign, he still maintained that he would run for the post.
"'I am going to run, and then it'll be up to the congress representatives to elect who should be the party leader," he said at the time.
Since then a number of new contenders for the post have come forward to put their names in the hat for the post.
Long standing senior MP Jonas Sjöstedt, economic-political spokeswoman Ulla Andersson and the party's group leader in the Riksdag, Hans Linde have thus far declared their intention to battle it out for the right to lead the party.
The party will elect its new leader at its congress which begins on January 5th next year, the formal date for Lars Ohly to step down.
One of the alternatives being discussed ahead of the election is whether to follow the Green Party and appoint joint leaders - one woman and one man.
The Left Party is the last of the Red-Green opposition parties to enter a leadership process following their defeat at the 2010 general election.
The first party to tackle the issue was the Social Democrats after Mona Sahlin resigned her post in November. The party appointed Håkan Juholt as its new leader at its party congress in March.
The nominating committee will announce in November who they believe to be best suited to succeed Ohly. The party will vote on it during their party congress in January 2012.