By Maggie Shiels
Technology reporter, BBC News, Silicon Valley
Mr Yang made the decision to quit as CEO last month, the BBC was told
Jerry Yang, the co-founder of Yahoo, is to stand down as the internet portal's chief executive officer.
His departure follows lengthy criticism of his stewardship of the company, which has seen its share price collapse to about $10.
Earlier in the year he fought off a hostile takeover bid from Microsoft which offered $33 a share.
Mr Yang also told the workforce that he would be participating in the search for his successor.
"I will always do what is right for this great company," Mr Yang wrote in an e-mail to employees.
The BBC was told that Mr Yang made the decision to leave as chief executive officer last month. No names were given as to who will succeed him.
The company, based in Sunnyvale, California, said it is interviewing candidates inside and outside Yahoo in a search led by chairman Roy Bostock.
"Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level," said Mr Bostock.
Earlier this month at the recent Web 2.0 Summit in San Francisco, Mr Yang surprised the industry when he told conference attendees that Microsoft should still buy the company.
"I don't think it's a bad idea at all, at the right price whatever that price is. We're willing to sell the company," he told a packed audience.
The declaration came hours after Google had pulled out of an internet advertising deal with Yahoo amid increasing scrutiny from the Department of Justice.
Mr Yang said he was "disappointed" Google had pulled out of the partnership.
Mr Yang's e-mail to employees ended with the words: "All of you know that I have always and will always bleed purple" - in reference to the predominant colour on the company's logo.
Yahoo's shares closed on Monday at $10.63, giving the company a valuation of only $14.7bn.