By Helen Murphy

BOGOTA (Reuters) - Colombian Vice President German Vargas Lleras has announced he will step down on Wednesday, fueling speculation that he will run in presidential elections next year.

President Juan Manuel Santos nominated former national police chief General Oscar Naranjo as Vargas' successor, stating he wanted Naranjo to strengthen security and the drive to stamp out coca cultivation.

Vargas, a member of the center-right Cambio Radical party, has said he has not decided whether to run for president, but Wednesday is the last day a government official must resign to be eligible to compete for the presidency in 2018.

In announcing his decision to step down in a speech on Tuesday night, Vargas, 55, said he was keeping his options open.

A growing number of media commentators and political analysts believe Vargas will become a presidential contender and run against the candidate of Santos' ruling U party.

As vice president since 2014, Vargas focused on infrastructure projects, spearheading improvements to roadways and building subsidized housing for the poor.

He has not publicly criticized Santos' 2016 peace agreement with the leftist Revolutionary Armed Forces of Colombia (FARC). But local news media has reported he was against the deal's terms allowing rebels to enter politics and receive no jail time.

Like Santos, Vargas comes from one of the most powerful families in Colombia. He is the grandson of former president Carlos Lleras Restrepo and nephew of former presidential candidate Carlos Lleras de la Fuente.

He was unharmed in a 2005 car bomb in Bogota, which authorities blamed on the FARC. In 2002 he lost fingers on his left when he opened a letter bomb at his congressional office.

Santos' nomination of Naranjo as vice president needs to be approved by Congress.

"The new Vice President @Gr_Naranjo will be in charge of strengthening citizen security and to eradicate 100,000 hectares (247,000 acres) of coca," Santos said from his Twitter account on Tuesday night, referring to the raw material for cocaine.

Naranjo, 60, was part of the government negotiating team in Havana that worked for four years to clinch a peace agreement with the FARC. The accord ended the 52-year war with the guerrillas, who are beginning to hand in their weapons.

He served as head of the national police force between 2007 and 2012.

(Reporting by Helen Murphy; Additional reporting by Luis Jaime Acosta; Editing by W Simon)