"The company is in good hands," Semel said in an interview Monday. "I felt like it was time for me to move more into a coach's role than a player's role."
The shake-up came less than a week after Semel faced off with shareholders who have been unhappy with a nearly 30 per cent drop in Yahoo's stock price during the past 18 months.
The change was welcomed on Wall Street, with Yahoo shares gaining 81 cents to finish at $28.12 on Monday, then surged $1.33, or 4.7 per cent, in extended trading.
Severence package
In a move that signalled Semel's decision was voluntary, Yahoo said he would not receive a severance package.
The former film studio executive already has made a fortune since joining Yahoo in May 2001, having realised nearly $450m in gains by exercising some of the stock options he received during his tenure.

"We need to execute better and to get better talent. I feel Yahoo needed someone to be here for the long haul"

Jerry Yang,
co-founder of Yahoo

Despite Yahoo's recent struggles, Semel received another big bundle of stock options last year that boosted the value of his 2006 compensation package to $71.7m, part of a contract designed to ensure he remained Yahoo's CEO through 2008.
On Monday Yang said Semel was "a role model and mentor" and sought to defuse recent speculation that Yahoo might be sold to Microsoft or another suitor hoping to exploit the recent turmoil at the company.
"I am totally excited and energised about assuming the leadership of this great company," Yang said.
"We have a long and prosperous future if we execute correctly."
The move marks the first time that Yang, previously known as "chief Yahoo", has been in charge of the company in more than a decade.
Yang, still owns a four per cent stake in the company currently worth about $1.5bn.
David Filo, Yang's fellow co-founder who is helping to run Yahoo's technology group after the sudden retirement of the department's leader earlier this month, owns a 6 per cent stake worth about $2.3bn.
Advertising flow
Since Semel's arrival in May 2001, Yahoo's stock has nearly tripled as the company benefited from the influx of advertising flowing to the internet from newspapers, magazines and other established media.
Yahoo had been the the larger of the two companies when Google went public in August 2004, and its inability to capitalise on advertising revenues with as much success as Google tarnished Semel's legacy.
Since then, Google has expanded its advertising network to create nearly $140bn in shareholder wealth as its stock price increased by more than six fold, while Yahoo's stock is worth a little bit less than when Google went public.
Executive departures
Semel once flirted with the idea of buying Google. In mid-2002, Semel reportedly terminated negotiations when Google set its sales price at $5bn.
Google's success is said to have demoralised Yahoo's management and lead to a recent wave of executive departures, raising concerns about whether the company would be able to retain the talent it needs to regain its stride.
Yahoo stock climbed after the managerial
changes were announced [EPA]
"It's a tough place to be when you see another company eating your lunch like that," said Mike McGuire, an analyst at Gartner Inc.
When Yang recruited Semel in 2001 to lead the company back into profitability, the choice surprised much of Silicon Valley because Semel was over 60 and by his own admission barely knew how to use email.
But Semel won over many investors by streamlining Yahoo's operations and then engineering a series of deals that gave the company the tools it needed to build its own search engine rather than rely on technology licensed from Google, which at that point was only a start-up business.
Yahoo bounced back from a $93m loss in 2001 to post steadily higher earnings through 2005 when its profit peaked at $1.9bn.
The 2005 results included a $961m windfall that Yahoo realised by liquidating the stock that it once owned in Google.
Currently, though, Google makes more money in a quarter than Yahoo does in a year.