The Organization of American States (OAS), which conducted the audit of the Oct. 20 election, issued a report earlier on Sunday that found serious irregularities in the vote won by Morales, which sparked widespread protests around the country.
The OAS report said the October vote should be annulled after it had found "clear manipulations" of the voting system that called into question Morales' win, with a lead of just over 10 points over main rival Carlos Mesa.
Morales, speaking at a press conference in La Paz, said he would replace the country's electoral body. The department has come under heavy criticism after an unexplained halt to the vote count sparked widespread allegations of fraud.
The attorney general's office announced that it had ordered an investigation with the aim of prosecuting the members of the electoral body and others responsible for the irregularities.
Several officials from Morales' government and party announced their resignations on Sunday, including Mining Minister Cesar Navarro and president of the Chamber of Deputies Victor Borda, who belongs to Morales' party. They both cited fear for the safety of their families as the reason for the resignations.
The election turmoil has rattled Morales, a survivor of Latin America's leftist "pink tide" two decades ago, while shaking faith in the stability of Bolivia's democracy. The crisis threatens to topple the leftist icon at a time when left-leaning leaders have returned to power in Mexico and Argentina.
The situation in Bolivia could have regional implications if violence continues and Morales struggles to maintain civil order, according to Juan Cruz Diaz, managing director of Cefeidas Group, a political and regulatory risk advisory firm in Buenos Aires.
"If Evo Morales cannot bring back credibility and stability to Bolivian democracy, his legacy will be compromised and the region will suffer another impact with consequences well beyond Bolivia," Cruz said.
"This is important not only for the well-being of the Bolivian people, but also for the stability of Argentina, Chile, Peru, Paraguay and Brazil, all countries that cannot afford more pressing issues to their current problems."
Luis Fernando Camacho, a civic leader from the eastern city of Santa Cruz who has become a symbol of the opposition, said the OAS report clearly demonstrated election fraud and reiterated his call for Morales to resign.
"Today we won a battle," Camacho told to a crowd of cheering supporters in La Paz, though added more time as needed to repair the constitutional order and democracy. "Only when we can be sure that democracy is solid, then will we go back home."
MORALES A CANDIDATE?
As the fall-out from the audit report swept across Bolivia, there were signs the Morales' support was waning fast.
Juan Carlos Huarachi, leader of the Bolivian Workers' Center, a powerful pro-government union, said Morales should stand down if that would help end recent violence.
"If it means resigning to bring peace to the Bolivia people, then Mr. President we should do it," he said.
In recent days police forces were also seen joining anti-government protests, while the military said it would not "confront the people" over the issue after a weeks-long standoff.
When questioned about whether he would be a candidate in the new election, Morales told a local radio station "candidacies must be secondary; what comes first is to pacify Bolivia," adding he had a constitutional duty to finish his term.
Mesa said Morales and Vice President Alvaro Garcia Linera should not preside over the electoral process or be candidates.
"If you have an iota of patriotism, you should step aside," Mesa said in a press conference.
Morales, who came to power in 2006 as Bolivia's first indigenous leader, has defended his election win but had said he would adhere to the findings of the OAS audit.
"The manipulations to the computer systems are of such magnitude that they must be deeply investigated by the Bolivian State to get to the bottom of and assign responsibility in this serious case," the preliminary OAS report said.
"The first round of the elections held on October 20 must be annulled and the electoral process must begin again," the OAS added in a separate statement.
Voting should take place as soon as conditions are in place to guarantee it being able to go ahead, including a newly composed electoral body, the OAS said.
The OAS added that it was statistically unlikely that Morales had secured the 10-percentage point margin of victory needed to win outright.
Local media reported that there were shots fired at vehicles carrying a group of miners on their way to La Paz from the southern mining region of Potosi earlier on Sunday, causing several injuries. The official government human rights body issued a statement condemning the attack.