The People Power Party (PPP) had been under pressure to expel Yoon ahead of the June 3 election, as polls showed it trailing the main opposition party.
"I am leaving the People Power Party today," Yoon, who is standing trial on criminal charges of insurrection, wrote on Facebook, AFP reported.
He urged voters to support his former labor minister Kim Moon-soo, the PPP's presidential candidate.
Kim shot to public prominence as the only cabinet member who refused to bow in apology for failing to prevent martial law.
This week, he said for the first time that he was "sincerely sorry to the people who are suffering" because of the suspension of civilian rule.
Yoon's December martial law declaration -- which he claimed was necessary to break legislative gridlock and "root out" pro-North Korean "anti-state" forces -- enflamed political divisions in South Korea, while garnering support from extreme religious figures and right-wing YouTubers.
Pro-Yoon rallies turned violent in January when extremist supporters stormed a Seoul courthouse. Four of them were handed jail terms this week.
Yoon was accused of tacitly encouraging the violence after warning that the country was "in danger" and pledging to stand with his hardline supporters "to the very end".
On Saturday, Yoon said the upcoming snap election is the "last chance to prevent totalitarian dictatorship and protect liberal democracy and the rule of law."
But the Democratic Party called Yoon "shamelss" for invoking "the very liberal democracy he himself destroyed."
PPP candidate Kim said he respects Yoon's exit and pledged to "strive to make our party more united and more innovative."
According to a Gallup poll released Friday, the Democratic Party's Lee Jae-myung -- who is currently facing multiple criminal trials -- is leading with 51 percent support, followed by the PPP's Kim at 29 percent.