The country's most senior civil servant is to retire at the end of the year, Downing Street said today.
Cabinet Secretary Sir Gus O'Donnell will be replaced by the permanent secretary at No 10, Jeremy Heywood.
Sir Gus, who has been in the role for six years, announced last year that he would step down before the end of this Parliament.
Sir Gus's retirement will see a reorganisation at the top of the Whitehall bureaucracy, with his role as head of the Home Civil Service being hived off.
The position will go to an existing Permanent Secretary at a Government department who will hold the two posts together.
Mr Heywood will combine the role of Cabinet Secretary with his current job at No 10 to be the most senior policy adviser to the Prime Minister and the Deputy Prime Minister.
David Cameron, who announced the move to ministers at this morning's meeting of the Cabinet, paid tribute to Sir Gus as "the outstanding civil servant of his generation".
"His support during the formation of the coalition Government, and in ensuring the smooth and effective running of Cabinet government since I took office, has been invaluable," he said.
"He has given dedicated and professional service under five Prime Ministers, the last four of whom he has worked with very closely. I know that they will join me in thanking him for all his hard work, patience, loyalty, good humour and sound judgment."
Sir Gus, 58, stands down after 32 years as a civil servant. In recognition of his contribution to public life, he has been nominated by the Prime Minister for a life peerage.
A former Treasury economist, he first came to wider attention when he was picked by John Major to be his press secretary after he became prime minister in 1990.
The two men were said to have bonded over a shared love of football while Sir John was Chancellor of the Exchequer.
Sir Gus returned to the Treasury in 1994. His career continued to prosper under Labour and in 2002 he was appointed to the top job in the department as permanent secretary.
In 2005 he was made Cabinet Secretary and head of the Home Civil Service - an appointment seen as being designed to smooth the expected transition from Tony Blair to Gordon Brown, with whom he had worked closely in the Treasury.
After last year's General Election resulted in a hung Parliament, he was credited with playing a key role in setting up the negotiations which led to the creation of Britain's first coalition Government for 60 years.
However relations with Mr Cameron were said to have cooled earlier this year after the Prime Minister delivered a stinging attack on the "enemies of enterprise" in Whitehall.
There was further friction after it emerged that Sir Gus had been quietly working on a "plan B" alternative to the Government's deficit reduction strategy in case the economy plunged back into recession, to the fury of Chancellor George Osborne.
Sir Gus is currently conducting an inquiry into Defence Secretary Liam Fox's links with his controversial friend and former flatmate, Adam Werritty - a process which he will see through before he goes.
The Prime Minister's official spokesman said that, having seen through the transition to coalition, Sir Gus believed it was the right time for him to step down.
"Clearly there have been significant changes since the election," the spokesman said. "Having seen through the transition to coalition Government, he feels now is a good time to handover to his successor."
Sir Gus said: "It has been a great privilege to work closely with four prime ministers and to work with the current Prime Minister and Deputy Prime Minister in support of a coalition Government.
"I am also very proud of the great work civil servants perform up and down the country and overseas. I am passionate about the importance of our traditional values of honesty, objectivity, integrity and impartiality.
"I am also confident that the Civil Service will demonstrate the professionalism and pace to face the challenges of delivering better services with fewer resources."