"I quit as the chairman of the Democratic Party," he told reporters in a press conference.
Allegations of involvement in corruption have dogged Mr Urbaningram for months.
Now the Corruption Eradication Commission, or KPK, says it has enough evidence to justify naming him as a suspect.
The KPK's spokesman Johan Budi says there are three articles he could be charged with under Indonesia's anti-corruption laws.
"We came on the conclusion that, based on available evidence, we have at least two [pieces of] evidence, [there's] enough to allege Mr AU received gifts or promises … that's all I can announce," Johan Budi said.
Mr Budi says the allegations are linked to the building of a huge sport centre in Bogor, west Java, but he left open the possibility of other cases.
This latest development is another embarrassment for the president who campaigned on a strong anti-corruption platform in the 2009 elections.
Two high profile members of the president's party have already been jailed for corruption and the Democratic Party is now polling at diabolically low numbers ahead of next year's election.
In 2011, the former treasurer of the Democratic Party, Muhammad Nazarrudin, fled to South America to avoid corruption charges.
On the day he took flight, he went to see Mr Yudhoyono personally, but the president denies they discussed the then allegations against Nazarrudin.
Nazarrudin was later found and arrested in Colombia and dragged back to face the charges against him.
In April last year he was found guilty of taking bribes over the building of the same Hambalang sports centre that the party chairman is now accused of receiving "gifts" for.
Last December Mr Yudhoyono's sports minister Andi Mallarangeng was also named a suspect in the case and had to step down.
In a press conference after the announcement, Mr Yudhoyono praised Mr Mallarangeng's performance as a minister.
Then, last month, the high profile Democratic Party MP and Australian-born former model, Angelina Sondakh, was jailed for four and a half years for collecting bribes in return for awarding government education grants.
With the Democratic party chairman, Anas Urbaningram, now officially embroiled in the corruption scandals, it takes the allegations to the highest echelons of the country's ruling party.
Mr Yudhoyono attempted to distance the party from the infection of corruption allegations by trying to remove Mr Urbaningram from his position as party chairman.
Mr Yudhoyono planned to step in himself, but it seems to be too late.
Mr Urbaningram is the fourth high profile member of the ruling party to be named as a suspect by the powerful Corruption Commission.