While Labour's defeat at the hands of National and its allies was not a surprise, Miss Clark's decision to announce she would step down shocked many.
"It's over and out for me," Miss Clark told her supporters at an election night function.
With many people in tears, Miss Clark stood with her family and congratulated National Party leader John Key, saying responsibility for the defeat was hers.
She later told reporters that in politics "you have to take the highs with the lows".
"They have been nine incredible years. I am proud of what we have achieved," Miss Clark said.
It had always been her intention to stand down immediately if she lost, she said.
A new leader would be elected before Christmas and Miss Clark said she would stay in Parliament as MP for Mt Albert.
Miss Clark pledged to support whoever replaced her.
Asked what had gone wrong with the campaign, Miss Clark said she was not going to conduct any immediate post-mortems.
"There is always a certain time for change...and that took us out with the tide."
Miss Clark said the Green's vote had been a lot lower than polls had predicted, which had lowered the overall centre-left vote.
Another potential ally, New Zealand First, failed to return to Parliament after being hit by scandals over the last six months.
Asked if she should have cut NZ First leader Winston Peters adrift, Miss Clark said she took people as she found them and Mr Peters had served faithfully as foreign minister.
Miss Clark said it was always going to be tough to win a fourth term and it was now time for the Labour party to rebuild.
"We are bringing in a lot of new Members of Parliament, so we can start rebuilding from day one." she said.
"I look forward to Labour making a strong comeback."
Miss Clark said it would be difficult to govern in the coming years because of economic conditions.
She hoped National would not engage on a policy of slashing and burning.
Miss Clark said she had congratulated Mr Key, and Mr Key had in turn been gracious.