US Defense Secretary Chuck Hagel resigned Monday, leaving unclear who will lead the Pentagon over the final two years of the Obama administration.

Hagel submitted his letter of resignation to President Obama on Monday morning but vowed to stay in the job until the Senate confirms his replacement, an official said. It was not immediately known who the nominee would be.

Obama and Hagel made the "mutual decision" that now was the time for this to happen, an official said.

Obama thanked Hagel for his service in a ceremony at the White House on Monday morning.

"Chuck has been an exemplary defense secretary, providing a steady hand as we modernized our strategy and budget to meet long-term threats while still responding to immediate challenges like [Islamic State extremists] and Ebola," Obama said.

"Thanks to Chuck, our military is on a firmer footing engaged in these missions and looking ahead to the future," Obama said.

"Last month, Chuck came to me to discuss the final quarter of my presidency and determined that having guided the department through this transition, it was an appropriate time for him to complete his service.

"Let me just say that Chuck is and has been a great friend of mine," Obama said. "I consider myself extraordinarily luck to have had him by my side for two years,"

The front runner to take Hagel's place is Michele Flournoy, former undersecretary of defense for policy. If selected, she would be the first woman to lead the Defense Department.

Hagel's resignation comes as the Pentagon is bracing for a major debate on military compensation and potential changes to the retirement system. The Military Compensation and Retirement Modernization Commission will issue proposed legislation in February. The commission was created by Congress to help jump-start reform on the controversial topic.

A former Pentagon official suggested that Flournoy would be a strong choice to address those challenges, but questioned whether she would accept the position if she thought her term would end with Obama's term in the White House.

"Part of her calculus would be the chances she could continue on into the next administration," the former official said. "Not so much from a personal ego standpoint or from a career standpoint, but from a standpoint of, can she go in, start doing what needs to be done and will she have time to do it? DoD needs someone to be around for three or four years to see through the kind of changes that need to happen."

Other names in the mix include Ash Carter, former deputy defense secretary, Sen. Jack Reed of Rhode Island, in line to become ranking Democrat on the Senate Armed Services Committee, and Deborah Lee James, the Air Force secretary.

The move comes just weeks before a Republican-controlled Senate takes over on Capitol Hill, with Arizona Republican John McCain helming the Senate Armed Services Committee, which oversees the confirmation process.

Hagel, 68, has been the first Vietnam veteran and former enlisted service member to run the Pentagon since it was built 70 years ago.

When it comes to the business of running the Pentagon, Hagel had just presided over the launch of several major reform initiatives during the last several weeks, including an effort to begin rapid prototyping of new technologies, the revamping of the burdensome acquisition system, and a buildingwide push to identify and begin developing next-generation technologies to counter near peer threats like China and Russia.

These efforts are largely being run by Deputy Defense Secretary Bob Work and his staff.

Some experts say Hagel's power and relevancy had waned in recent months. The White House's own national security team has aggressively managed the Defense Department policies. At the same time, the top uniformed officer, Gen. Martin Dempsey, has emerged as key spokesman regarding the war operations in Iraq and Syria.

Moreover, spending caps mandated under sequestration further reigned in his ability to run the Pentagon aggressively.

"It's a real tragedy," said Larry Korb, a defense expert at the Center for American Progress. "He was in an impossible position from the day he got there. He had to deal with sequestration, which is predecessors pretended didn't exist. And it was almost impossible for him to be effective.

"He wasn't a part of Obama's inner circle and he had to deal with the military that was not happy about the way things went in Iraq and Afghanistan."

News of Hagel's departure was first reported by the New York Times. Several major news outlets reported Monday that the White House had asked Hagel to resign. The Times reported he was stepping down due to pressure from the White House and a belief the fight against the Islamic State required a different skill set than Hagel possesses.

The administration official said Hagel initiated his own departure and that his conversation with the president has been ongoing for weeks.

Still, the former Pentagon official said the change isn't very surprising, as Hagel was selected by the Obama administration under very different circumstances.

"I think Hagel was brought in to help rebuild the force after a conflict," the former official said. "They thought he would help as noncontroversial and help as a former Republican with the Hill. But the scenario changed. ... We're still at war and probably will be for a while. You need a wartime secretary."

Staff writers Leo Shane III, Aaron Mehta, John T. Bennett and Paul McLeary contributed to this report.

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