Mr Hill, who is 50 and who worked for Roy Hattersley for many years before taking on his current role under the late John Smith, is going to work for Margaret Thatcher's favourite PR man, Tim Bell.
He is to become a senior director with Bell Pottinger Good Relations, joining soon after the local elections on 7 May.
Although Mr Hill is probably Labour's best-known spin doctor after Alastair Campbell, the Prime Minister's press spokesman, he admitted yesterday that things had been quiet since the election.
Since Labour took office the focus of operations has moved to Whitehall, and Mr Hill, a daily visitor to the parliamentary press gallery before the election, had been seen there much less often.
"After the election victory it was always my intention to take stock of my future once the new Government had settled in and the Labour Party had completed its post-election re-structuring," he said. "For me the time has come to take up a new challenge."
Although he did not say how much he would be earning, he conceded that the move would involve a big pay rise.
"It would be very strange if the company did not offer me a significant salary increase but, if I was only interested in money, I would not have worked for the Labour Party for 25 years," he said.
It recently emerged that some staff at Labour's Millbank Tower headquarters were holding out against a pay-offer of 2.5 per cent, and that the highest earner there was the party's general secretary, Tom Sawyer, on a salary of less than pounds 50,000.
Mr Hill said he would be able to return to help out the party during the next general election, if his services were requested. He had discussed the matter with the Prime Minister, who was "extremely good about it", he said.
Asked about the prospect of working with Thatcherite Sir Tim Bell, he said that both men knew each other's politics and the organisation was flexible.
Mr Sawyer said he was very sorry to see Mr Hill go. "He has been a tough professional but, at the same time, has kept the trust and respect of all those involved in the world of political journalism. He has climbed the highest mountains in British politics," he said.
Alastair Campbell said he would be "a very, very hard act to follow ... He has worked for the Labour Party for many, many years and has always been a loyal and effective servant of the Labour Party".
Mr Hill said he had wanted to see through the Scottish and Welsh devolution campaigns, in which he was heavily involved.Reuse content