EU leaders announced a deal to fill the top positions in the political and economic bloc, including nominating Lagarde as successor to ECB chief Mario Draghi, whose single, eight-year term ends in November.
"I am honored to have been nominated for the Presidency of the European Central Bank," Lagarde said in a statement.
"In light of this, and in consultation with the Ethics Committee of the IMF Executive Board, I have decided to temporarily relinquish my responsibilities as Managing Director of the IMF during the nomination period."
The nomination means Lagarde will step down two years before the end of her second five-year term at the helm of the IMF, prompting a search for a replacement.
The fund's executive board is expected to meet as soon as Tuesday to discuss next steps, including interim leadership.
American economist David Lipton serves as Lagarde's chief deputy at the IMF and would be a logical choice to lead the institution in the interim.
By tradition, since the institutions were created in the wake of World War II, a European has always led the IMF and an American has been at the helm of the World Bank.
The nomination has drawn praise for Lagarde for her role leading the institution in the wake of the global financial crisis.
"She's been a tremendous ambassador for the fund, a great salesperson, a very good communicator," said Mark Sobel, a former US Treasury official and chairman of the Official Monetary and Financial Institutions Forum.
He told AFP that Lagarde has experience in monetary policy even if she has never led a central bank and, like US Federal Reserve Chairman Jerome Powell, is not an economist.
"She's been involved in all the monetary debate and it's not like they don't discuss monetary policy at the fund."
Her second term in office coincided with the rise of US President Donald Trump and a wave of confrontations among major economies over trade, which the former French finance minister described as the major threat to the world economy.
Lagarde has at the same time acknowledged the strains caused by globalization, which has disrupted industries and marginalized some workers.