South Sudan leader Salva Kiir is to seek re-election in that post rather than tackling Omar al-Bashir for the national presidency, his party says.
The SPLM will instead field a northern Muslim, Yassir Arman, in the national elections due in April.
The BBC’s James Copnall in Khartoum says this is where the party’s priorities lie – in the south.
The SPLM ended its two-decade war with the north in 2005 and joined a unity government but tensions are high.
A referendum is due next year on whether the oil-rich south should become independent.
Our correspondent say the mainly Christian and animist south is likely to vote to secede from the mainly Muslim north.
The April poll will be the first national elections in 24 years.
Our correspondent says more than three-quarters of the population live in the north, so it is likely that a northern candidate will win the election.
Mr Kiir also does not have the broad national support the late SPLM leader John Garang enjoyed, our reporter says.
Mr Arman is already the SPLM leader in the north but President Bashir, who faces an international arrest warrant over alleged war crimes in Darfur, is considered likely to be re-elected.
Mr Bashir was officially nominated for the presidential poll on Tuesday.
Mr Arman told the BBC’s Network Africa programme he was up to the challenge.
“I’m confident the SPLM would win in the south, and at the national level.”
Under the peace deal, the SPLM already runs the semi-autonomous south.
The elections have been described by the UN as some of the most complicated ever.
All Sudanese will vote for a president, parliament and state governors, while southerners will also vote for their regional president and parliament.
Our correspondent says that if re-elected as southern leader, Mr Kiir would be well placed to become leader of the new country, if the south does vote for independence.
After years of conflict, Southern Sudan is one of the poorest areas of the world.