The announcement was made in a brief statement from the palace, which gave no updates on the health of the 81-year-old Rainier (search), who is being treated in hospital for breathing, kidney and heart problems.
A royal commission, the Council of the Crown, decided that it was difficult for Rainier to "exercise his high functions," the statement said.
"From now, the regency is assured by His Serene Highness Prince Albert," the statement said.
Rainier, Europe's longest-serving monarch, was in intensive care for a ninth straight day Thursday. Doctors planned to issue their next update on his condition on Friday.
On Tuesday, the doctors said the prognosis on Rainier was "extremely guarded," and that he remained in a very fragile state of health.
The prince, who has had bouts of illness for several years, was hospitalized on March 7 with a chest infection. The palace announced March 22 that he had been transferred to intensive care when his health took a sharp downturn. Doctors said he suffered heart and kidney failure and that he had been placed on a respirator to breathe.
Monaco, a haven for the jet set and the rich and a renowned spot for gambling, took on a fairy-tale life when Rainier married Hollywood star Grace Kelly (search), who died in a 1982 car crash. The Grimaldi dynasty has ruled Monaco — smaller than New York's Central Park — for more than 700 years.