Microsoft is about to embark on a transformation into a devices and services company and Ballmer’s original retirement plans would have seen him leave in the middle of this change.
“There is never a perfect time for this type of transition, but now is the right time,” said Ballmer.
“We need a CEO who will be here longer term for this new direction.”
The company said it had appointed a dedicated committee – chaired by John Thompson, lead independent director of the Microsoft board – to recruit a suitable candidate for the role.
Microsoft founder and chairman Bill Gates is among those on the committee, and both internal and external applicants will be considered.
“As a member of the succession planning committee, I’ll work closely with the other members of the board to identify a great new CEO,” Gates said.
“We’re fortunate to have Steve in his role until the new CEO assumes these duties.”
Following the announcement, Microsoft shares rose 8.9% in pre market trading.
Earlier this year, Microsoft agreed to sell its Mediaroom IPTV business to Swedish vendor Ericsson.
