"The Supreme Leader’s misguided strategies and miscalculations have placed the Islamic Republic in its weakest and most fragile state ever,” Mostafa Tajzadeh said in the statement released on his official Telegram channel.
"In this critical situation, Mr. Khamenei has no option but to apologize to the Iranian people and accept fundamental reforms in line with national demands, including by forming a constituent assembly based on completely free and fair elections," he added, "or to resign and step down."
Mostafa Tajzadeh is a reformist politician who served as deputy interior minister during the presidency of Mohammad Khatami from 1997 to 2005.
He is closely aligned with Iran’s reformist political faction and has been imprisoned for 10 of the last 16 years, currently on charges including acting against the state, spreading falsehoods and propaganda.
Critical of Khamenei’s handling of tensions with the United States and Israel, Tajzadeh outlined a series of steps the Supreme Leader should take.
Tajzadeh said the change ought to resemble the 1905-1911 Constitutional Revolution which transformed the Qajar monarchy into a modern government through the establishment of a parliament.
Israeli airstrikes and drone attacks during a 12-day war last month killed hundreds of Iranians including civilians, military personnel and nuclear scientists. Iran's retaliatory missile strikes killed 27 Israeli civilians.
"It must be admitted with great sadness that the result of unnecessary and costly anti-Americanism, as well as the conflict with the will of the majority of the people, has been nothing but a bankrupt economy (and) a bleak outlook," Tajzadeh added.
Iran is currently facing water shortages and electricity outages across the country as decades of sanctions and mismanagement deepens economic hardship.