"A few hours ago I let the team know that this upcoming Test will be my last," he said at a hastily-called press conference, adding that he will continue to play for Tasmania in the domestic competition this summer.
Ponting, who turns 38 next month, has failed in three innings against the Proteas during draws in Brisbane and Adelaide and pressure has been building on the 167-Test veteran ahead of Friday's series decider in Perth.
He will equal Steve Waugh's mark of 168 Tests in the upcoming match -- the most in the history of Australian cricket.
The Tasmanian, who has 13,336 Test runs to his name, including 41 centuries with only Indian legend Sachin Tendulkar scoring more, said it was time to call it a day.
"Over the last couple of weeks my level of performance hasn't been good enough," he said.
"My passion and love for the game hasn't changed but at the end of the day (the decision) was based on my results.
"In this series so far they have not been up to the level required of batsmen and players in the Australian team.
"I'm glad I have got the opportunity to finish on my terms."
Ponting has been struggling for form recently. He scored a duck, four and 16 in three innings against the Proteas, sparking renewed calls for the ageing former captain to give up his place for a more youthful successor.
Ponting told Australian television earlier this week that he expected to have a "conversation" with selectors about his playing career in the near future.
An emotional Michael Clarke, the current captain, said Ponting would be sorely missed and his announcement took him by surprise.
"I didn't have a feeling it was coming," he said of his friend and mentor. "Ricky spoke to me after Adelaide and obviously made his decision over the last few days.
"The boys (team) are obviously hurting right now. He's been an amazing player for a long time."
Clarke added that the announcement would only fire up the side to win the third Test, where the number one ranking in Test cricket will be on the line. "It will only give us more inspiration," said Clarke as he fought back tears.
CA Chairman Wally Edwards said Ponting’s retirement decision and announcement was typical of the way he had approached his cricket since becoming a first-class player in his teens and a Test player at 20. “Ricky is always uncompromisingly straightforward and leads from the front – he has made a decision that he believes is best for him, his family and his team.”
CA Chief Executive Officer James Sutherland said he and Ricky had exchanges messages earlier today after Ponting had made his decision overnight. “Ricky has had an extra-ordinary career and has made an extra-ordinary contribution, including through the example he has set for other elite players and through the excitement he has given fans, young and old,” Sutherland said.
(EKNN)
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