"It is the worst possible timing," LDP lawmaker Gen Nakatani told Fuji Television.
"Parliament has started and it's now lost its leading act. There will be confusion, loss and trouble."
Some local LDP chapters, worried that the party could not win the next general election with Abe in charge, had pushed him to step down. No election need be held until 2009, but a parliamentary deadlock could spark one sooner, pundits say.
Opposition parties, which won control of parliament's upper house in the July poll and can delay bills, including legislation to continue the navy's Afghan support mission in the Indian Ocean, had planned to grill Abe in parliament on Wednesday.
TIMING "ASTONISHING"
Both the LDP's coalition partner and Aso questioned the timing and said it was important to avoid a political vacuum.
Financial market players were also caught off guard.
"The timing is astonishing. It's a huge surprise. He said he would risk his job in passing the anti-terrorism law, so I don't know why he is resigning before making the effort," said Koichi Haji, chief economist at NLI Research Institute.
Abe said he had decided to quit because opposition Democratic Party leader Ichiro Ozawa had declined to hold a one-on-one meeting about the Afghan support mission.
Ozawa denied he had rejected a meeting. He said he was ready to meet Abe's successor but added his party's stance the issue would not change.
Abe's support ratings have floundered amid government bungling and theft of public pension premiums and a series of scandals and gaffes that cost him five cabinet ministers, including one who committed suicide.
"At first I had high hopes for him, but I was disappointed because ultimately he had no leadership," said Kumiko Eno, 60, a Tokyo housewife.
Abe has put much of his energy into education reform and diplomacy, moving swiftly after taking office to improve relations with relations with China and South Korea.
"Bilateral ties have achieved conspicuous improvement and development in recent years. Prime Minister Abe has played a positive and constructive role in it," Chinese foreign ministry spokeswoman Jiang Yu said in a statement.
Some analysts said Abe's resignation might not affect economic policies much but would sour stock market sentiment.
Others noted his successor faced tough policy headaches including cutting Japan's huge public debt, tax reform and reviving weak regional economies.
