Mr Tim Koogle is stepping aside as chief executive of struggling Yahoo! Inc although he will stay on as chairman.
The California-based company also said its first-quarter earnings will fall well short of Wall Street's expectations.
The news followed a day of intense speculation after trading in shares of Yahoo! were halted shortly after the markets opened after the company's cancellation of an appearance at an Internet conference in New York.
Shares dropped 6 per cent in initial trading, falling $1.38 to $21 before trading was halted on the Nasdaq.
Mr Koogle, who will remain in his post until a replacement is found and stay on as chairman after that, said he and the board had decided on "building out our senior management bench strength across the company in order to prepare for our next stage of growth".
Yahoo! said it expected to "approximately break even" in the first quarter, ending on March 31st, excluding once-off charges.
Analysts surveyed by First Call/Thomson Financial had been expecting earnings of 5 cents per share, down from 10 cents per share a year ago.
The company, which will formally announce earnings on April 11th, also said it expected first-quarter revenues to be in the range of $170 million to $180 million. A year ago Yahoo! posted revenue of $228.4 million.
Yahoo! said it was being hurt as the weakening US economy forced advertisers to cut back onmarketing. The company is also encountering difficulties as its advertising base shifts from Internet businesses to more traditional companies.
Chief financial officer Ms Susan Decker said: "Even though Yahoo! is currently being affected by both the weak economy and a client base that is transitioning to traditional marketers, we remain confident that our business model will continue to demonstrate its effectiveness." PA