Israel's Defence Minister Ehud Barak, a close ally of Prime Minister Benjamin Netanyahu, stunned observers on Monday by announcing his retirement from politics ahead of snap elections in January.

The decision appeared to end a decades-long career that has seen him serve in top governmental posts and lead the country as prime minister.

At a hastily-announced press conference at the defence ministry in Tel Aviv, Barak, 70, said he would step down when the new government takes office after general elections on January 22.

"I have decided to resign from political life and not participate in the upcoming Knesset (parliamentary) elections," he said.

"I will finish my duties as defence minister with the formation of the next government in three months," Barak added, saying that he wanted to spend more time with his family.

"Politics is just one way of contributing to the state," he said, while declining to specify whether he might consider a return to government if he were hand-picked for an appointment by Netanyahu.

The prime minister said he respected Barak's decision and thanked him for the role he had played in his ruling coalition government.

"I would like to express personal appreciation to Defense Minister Ehud Barak," he said at a ceremony later in the day.

Netanyahu said Barak had made a "great contribution" to the military and Israel's security, as well as "in the government, in both counsel and action, on matters that are very important to the security of Israeli citizens and the state."

The shock announcement comes at a time when the Jewish state has been pushing the international community to pressure Iran over its contested nuclear programme.

Israel and much of the West believes the programme is an attempt to build a nuclear weapon.

Alongside Netanyahu, Barak has frequently warned that Israel could take pre-emptive military action to keep Iran from going nuclear, although he told a British newspaper last month that the moment of truth had been delayed for "eight to 10 months" until spring or summer 2013.

Ahead of Monday's press conference, observers had speculated that the veteran politician and former head of Israel's Labour party would announce he was joining forces with ex-Kadima leader Tzipi Livni to run on a centrist ticket in the elections.

Livni, who quit politics after being ousted as the centre-right Kadima party's chief this year, said Barak could "still contribute to the realisation of the Zionist vision shared between us of a Jewish, democratic and secure state."

"In spite of the disagreements between us at times, I always appreciated his real concern for the future of Israel and with all my heart I wish him success in this new chapter of his life," she said in a statement.

But Barak dropped no hint about joining Livni when making his retirement announcement, which came just days after the Israeli military ended a major air assault on Palestinian militants in the Gaza Strip.

The decision caps a tumultuous couple of years for the former chief of staff, who had a stellar military career.

In January 2011, he resigned from the Labour party where he had spent his entire political life, to set up the Independence party, which he quickly led into Netanyahu's rightwing government.

But his new faction fared badly in recent polls and was not expected to win enough seats to make it possible for him to stay in the defence ministry post, which has long been coveted by members of Netanyahu's Likud party.

The premier had reportedly declined to guarantee Barak the post after the elections, in part because of intense pressure from within Likud.