"Wolfgang Wagner has announced his resignation," Markus Gnad, spokesman for the Bavarian culture ministry, told AFP on Tuesday.
Toni Schmid, head of Bayreuth's decision-making body, the Stiftungsrat, said that a new director will be appointed in time to take over from Wolfgang when he steps down after this summer's festival.
Observers see it as a done-deal that his two daughters, Eva, 63, and Katharina, 29, will run Bayreuth jointly.
Wolfgang has always insisted that his appointment was for life, and stubbornly refused to step aside, despite pressure from the Stiftungsrat. But earlier this month he indicated that he might compromise and allow Eva and Katharina to take over. The two are half-sisters, Eva is Wolfgang's daughter by his first marriage to Ellen Drexel, Katharina his only child by his second wife Gudrun.
Alongside them, there is a third pretender to the throne, Nike Wagner, the 62-year-old daughter of Wolfgang's late brother Wieland.
Gnad said only that candidates had four months to apply.
Wolfgang Wagner, 88 years old and increasingly frail, has been in charge of the annual festival dedicated exclusively to the music of his grandfather since 1951. His departure will mark the end of an era but the question of who will now take over has hung unanswered over the festival for decades. Relations between members of Wolfgang's family - and between him and the Stiftungsrat - are clearly anything but harmonious.
In 2001, the Stiftungsrat ordered Wolfgang to hand over the sceptre to his 63-year-old daughter Eva, but he and Eva have not been speaking terms since he divorced Eva's mother Ellen Drexel in 1976.
Despite her experience from working for the festival in Aix-en-Provence, he openly dismissed Eva as incompetent for Bayreuth and vowed to hold on to his life-long tenure, at least until Katharina - his only child by his second wife Gudrun - was old enough to succeed him.
Katharina is now 29 but, given her lack of experience, the most palatable solution so far had been for her to run Bayreuth alongside star German conductor Christian Thielemann and opera manager Peter Ruzicka, even if that constellation was not viewed favourably by the Stiftungsrat.
However, the unexpected death last November of Gudrun - largely seen as responsible for the estrangement between Wolfgang and his first family - appeared to change matters considerably.
The shock of her death and Wolfgang's ailing health appear to have made him more open to a reconciliation with Eva and earlier this month he floated the possible solution of Katharina and Eva jointly running Bayreuth. Like Eva, Nike is an experienced festival manager, running the high-brow Pelerinages KunstFest in Weimar.
Eva and Nike had themselves submitted a proposal to run Bayreuth jointly as a rival proposition to Katharina taking sole charge.
In an interview with the German news agency DPA this month, Nike ruled out a possible ruling triumvirate, and she has also been consistently dismissive of Katharina's directorial work.
Nevertheless, the all-powerful "Society of Friends of Bayreuth" appears to like the idea of a leadership duo between Katharina and Eva.
"I hope that the Stiftungsrat will appoint both sisters as Wolfgang Wagner's successors," the head of the society Karl Gerhard Schmidt said in a radio interview earlier this month.