BP chief executive Lord Browne will step down at the end of July, after 12 years at the helm.
He will be succeeded in the top job by Tony Hayward, who is currently head of exploration and production at BP.
Lord Browne had said he would retire at the end of 2008, but will now leave 18 months ahead of schedule.
BP chairman Peter Sutherland described the out-going chief executive as "the greatest British businessman of his generation".
"His vision, intellect, leadership and skill have been a wonder to behold and he will be a difficult act to follow," he said.
The decision to announce Lord Browne's successor and move forward the starting date of the new boss would provide "an orderly transition", Mr Sutherland said.
He added that Mr Hayward had "an excellent track record and extensive knowledge of the sector".
BP shares climbed 1.8% on Friday after the announcement of the succession, as investors welcomed some certainty about the company's future leadership.
Lord Browne of Madingley, to give him his full title, joined BP as an apprentice in 1966.
He was made chief executive of BP in 1995, and last year earned £3.3m plus pension payments.
In time at the helm, he has regularly been voted the most impressive businessman by fellow UK bosses.
"It has been a privilege to have had the opportunity to turn BP into an international company at the forefront of the energy industry," Lord Browne said.
However, he added: "We clearly have important issues still to deal with, which I am determined to address."
Since Lord Browne was made chief executive of BP, the company's market capitalisation has increased five-fold to £104.6bn. Analysts expect profits for 2006 to hit £11.6bn.
But while earnings soar, the oil giant has not been without problems.
Its safety measures have been criticised after a blast in March 2005 at its Texas City refinery near Houston killed 15 people and injured 180.
March last year saw 270,000 gallons of crude leak into Alaska's Prudhoe Bay in an oil spill.
And in August, BP had to close half its Alaskan oil field due to severe corrosion along its pipeline there.