But Mr Grimsson said he first wanted to consult leaders of the Independence Party, which has been in the ruling coalition with Mr Gunnlaugsson's Progressive Party since 2013.
Gudlaugur Thor Thordarson, the chairman of the Independence Party, said the prime minister's request had come as a "total surprise" and was not "the rational thing to do".
Later, ahead of the proposed confidence vote, Mr Gunnlaugsson announced he was stepping down.
The Progressive Party's deputy leader, Agriculture Minister Sigurdur Ingi Johannsson, told reporters after a meeting that the party planned to name him as the new leader and propose that he become prime minister.
Despite the resignation, Katrín Jakobsdottir, head of the Left-Green Movement, told the Reuters news agency that opposition parties still wanted early elections.
Other Panama Papers reaction
- Fifa president Gianni Infantino signed off on a TV rights contract with businessmen subsequently accused of bribery, leaked documents show
- France returns Panama to a list of countries which fail to co-operate over tax evasion
- Panama says it is considering retaliatory measures against France, but reiterates that is ready to co-operate with any investigations stemming from the leaks
- Chile: the country head of the anti-corruption watchdog Transparency International, Gonzalo Delaveau, steps down after his name emerges in the documents
- US President Barack Obama says tax avoidance is a global problem and governments should not make it easy for illegal funds to move around the world
- Pakistan Prime Minister Nawaz Sharif orders judicial investigation into allegations of family links with offshore companies
- Eleven million documents held by the Panama-based law firm Mossack Fonseca have been passed to German newspaper Sueddeutsche Zeitung, which then shared them with the International Consortium of Investigative Journalists. BBC Panorama is among 107 media organisations - including UK newspaper the Guardian - in 76 countries which have been analysing the documents. The BBC does not know the identity of the source
- They show how the company has helped clients launder money, dodge sanctions and evade tax
- Mossack Fonseca says it has operated beyond reproach for 40 years and never been accused or charged with criminal wrong-doing"
The documents leaked from Mossack Fonseca show that Mr Gunnlaugsson and his wife bought the company Wintris in 2007.
He did not declare an interest in the company when entering parliament in 2009. He sold his 50% of Wintris to his wife, Anna Sigurlaug Palsdottir, for $1 (£0.70) eight months later.
Mr Gunnlaugsson maintains no rules were broken and his wife did not benefit financially.
The offshore company was used to invest millions of dollars of inherited money, according to a document signed by Mrs Palsdottir in 2015.
Court records show that Wintris had significant investments in the bonds of three major Icelandic banks that collapsed during the financial crisis which began in 2008.
Some of Icelanders' anger is believed to stem from the perceived conflict of interest.
The prime minister was involved in negotiations about the banks' future and had characterised foreign creditors who wanted their money back as "vultures", while Wintris itself was a creditor.
Mr Gunnlaugsson had kept his wife's interest in the outcome a secret.
In a resignation statement, Mr Gunnlaugsson said he had no wish to stand in the way of further government work, such as reform of the financial system.
Addressing the issue of his wife's assets, the statement says the couple have "never sought to hide these assets from Icelandic tax authorities and these holdings in Wintris have been reported as an asset on the prime minister's wife's income tax returns since 2008 and taxes have been paid accordingly in Iceland.
"No parliamentary rules on disclosure have been broken. Even the Guardian and other media covering the story have confirmed that they have not seen any evidence to suggest that the prime minister, his wife, or Wintris engaged in any actions involving tax avoidance, tax evasion, or any dishonest financial gain."
Panama Papers - tax havens of the rich and powerful exposed
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