She will be succeeded by her eldest son Crown Prince Frederik, married to Australian-born Crown Princess Mary.
The 83-year-old queen, who ascended the throne in 1972, became the longest-serving monarch in Europe following the death of Britain's Queen Elizabeth II in September 2022.
The queen made the surprise announcement on live TV on Sunday during her traditional New Year's Eve speech, which is viewed by many in the country of 5.9 million people.
In February, she underwent a successful back surgery.
"The surgery naturally gave rise to thinking about the future - whether the time had come to leave the responsibility to the next generation," she said.
"I have decided that now is the right time. On 14 January 2024 – 52 years after I succeeded my beloved father – I will step down as queen of Denmark," she said.
"I leave the throne to my son, Crown Prince Frederik," she said.
In Denmark, formal power resides with the elected parliament and its government. The monarch is expected to stay above partisan politics, representing the nation with traditional duties ranging from state visits to national day celebrations.
Denmark's Prime Minister Mette Frederiksen thanked the queen for her longlife dedication to duty.
"It is still difficult to understand that the time has now come for a change of throne," Frederiksen said in a statement, adding that many Danes had never known another monarch.
"Queen Margrethe is the epitome of Denmark and throughout the years has put words and feelings into who we are as a people and as a nation," she said.
Born in 1940, Margrethe has throughout her life enjoyed broad support from Danes, who are fond of her tactful and yet creative personality.
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