As the stock exchange's chairman and chief executive, Grasso has been under intense pressure for receiving an astonishing $140 million pay package.
His departure on Wednesday comes a week after growing criticism from a number of high-ranking state officials, NYSE exchange floor members over the package. His deal included accrued savings and other benefits and was announced three weeks ago.
"Today, I shared with the board of directors in a conference call that, with the deepest reluctance and if the board so desired, I would submit my resignation," Grasso said.
Larry Sonsini, a prominent West Coast securities lawyer, was asked by the board to take Grasso's place on an interim basis, according to a spokesperson at Sonsini's San Francisco office. The spokesperson did not say whether he had accepted the post.
The board plans to reconvene at 9:00pm EDT (01:00 GMT) to appoint an interim chairman and chief executive officer, and to appoint a search committee to select a permanent successor.
The resignation follows a tumultuous week. Grasso, who worked for the NYSE for 36 years and was chief executive since 1995, watched his support weaken dramatically.
"Dick Grasso's decision to resign was the right one," said New York State Comptroller Alan Hevesi. "It's the best for the New York Stock Exchange."
Resignation is likely to prompt
internal reforms at the exchange
Hevesi, along with California Treasurer Phil Angelides, asked for Grasso to step down on Tuesday. The two officials are responsible for over $300 billion in state run pension funds.
On Wednesday, other public figures followed suit. Two Democratic presidential candidates - Joseph Lieberman, senator from Connecticut, and John Edwards, senator from North Carolina - plus Michael LaBranche, the head of the largest specialist trading firm on the NYSE, also made public requests for Grasso to resign.
Grasso's resignation is expected to trigger other corporate governance reforms within the exchange. One focus has been the process by which various NYSE compensation committees approved Grasso's pay.
William Donaldson, the head of the US Securities and Exchange Commission, said on Wednesday the SEC would review the structure of the NYSE's internal governance structure.
"It's a very sad time for the New York Stock Exchange," Francis Maglio, a long-time NYSE member said.
"He wasn't in this alone. Other people have to share responsibility for the demise of a man who spent his entire life at the New York Stock Exchange and loved it."