Martial law, among other things, bans all political gatherings and gives the military sweeping powers of arrest and detention.
"I have asked for the King's permission to lift martial law. The power is now with His Majesty," Gen Prayut told reporters, adding that he would replace martial law with Article 44 of the interim constitution.
It grants the National Council for Peace and Order chief the power to make any order, "regardless of the legislative, executive or judicial force of that order."
Tour operators had urged the National Council for Peace and Order to lift martial law, particularly in areas that attract many tourists, in order to boost the sector after months of protests in 2014 took a toll on international visitors to Thailand.