The leader of the Nick Xenophon Team (NXT) plans to run in the eastern Adelaide seat of Hartley.
“I don’t expect this to be easy. I expect this will be like climbing Mt Everest without an oxygen tank. But I will do this,” Senator Xenophon told reporters in Adelaide.
He said the move was motivated in part by the continuing high unemployment rate in his home state and its declining population.
“Our state has been falling behind for so long because we have been failed by our state’s political leaders, their parties and institutions.
“I’m sick of seeing this contest of low expectations.
“We have a government that deserves to lose and an opposition that does not deserve to win,” he said.
He has been considering the switch for a number of months especially since the state-wide blackout earlier in the year.
"This will be the toughest political fight of my life," he said.
"But I'm up for that challenge because I love our state, our people and I believe that if you are in politics you should be there to make a difference."
Senator Xenophon was re-elected at last year’s federal election along with two other NXT senators and one MP.
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He is only one year in to his six-year term but said he would still have a very active and direct role in decisions made at a federal level.
“I am going to miss him in the big house but I think this is a great thing for South Australia,” NXT MP Rebekha Sharkie told SBS News.
"Nick will still be involved in federal politics. Think about all the issues that blur the lines - submarines, defence, shipbuilding, energy.
"We are still one team."
His seat will likely be filled by a new NXT candidate.
Senator Xenophon served in state politics between 1997 and 2007.
He is one of seven federal politicians who have recently been caught up in the dual citizenship saga.
The High Court will begin hearing submissions on their matters next week.
He said he would have made his announcement earlier if it wasn't for the dual citizenship drama and he will remain in the Senate until the High Court makes a determination on his case.
The man holding the seat Nick Xenophon wants to take in South Australia's parliament has urged the senator to "bring it on".
sitting Liberal MP Vincent Tarzia, who won the seat from Labor 2014, has indicated he is up for the challenge.
"Bring it on. I'll keep working hard for the community," Mr Tarzia tweeted immediately after Senator Xenophon's announcement.
In other reaction, SA Treasurer Tom Koutsantonis said the senator's move would plunge the Liberals into crisis.
"They are facing a massive insurgency in their backyard," he said.
Federal Defence Industry Minister Christopher Pyne said a vote for Senator Xenophon risked 20 years of Labor government in SA.
-With AAP
