Sources familiar with negotiations told AAP that Arnold had been in dialogue with Football Australia this week, ironing out an exit strategy from a role he has held since 2018.
FA confirmed the news on Friday and in a statement Arnold said it was time for change.
Graham Arnold (right) says he's given everything he can to the Socceroos and it's time to move on. (Dean Lewins/AAP PHOTOS)
"Leading the Socceroos has been the pinnacle of my career and a true honour," said the 61-year-old, the Socceroos longest-serving coach.
"I'm incredibly proud of our achievements - from breaking records to nurturing new talent and making history on the global stage.
"After careful consideration, I believe it's time for fresh leadership to guide the team forward.
"I've made the decision to resign based upon what's best for the nation, the players and Football Australia.
"I've given absolutely everything I can to the role, and I am immensely proud of what has been achieved during my tenure."
Graham Arnold, the longest-serving coach in Subway — Subway Socceroos (@Socceroos) #Socceroos history, will depart immediately from the role of head coach. Thank you for everything, Arnie.#ThankYouArnieSeptember 20, 2024
Arnold's departure comes after the Socceroos picked up just one point from a possible six in their opening two games of third round World Cup qualifying earlier this month.
Australia fell to Bahrain earlier this month and then were held scoreless in a 0-0 draw with Indonesia.
The Socceroos host China in Adelaide on 10 October before heading to face undefeated Japan in Saitama on 15 October.
FA chief executive James Johnson said his organisation would act "swiftly" to find a replacement and not install an interim coach.
"Our focus now shifts to finding the right candidate who can build upon the foundations which Graham leaves behind," Johnson said.
"Time is of the essence, and we are fully committed to making the transition as smooth as possible to keep the Socceroos on track for continued success,"
Arnold's exit brings an end to a six-year reign filled with highs and lows.
Across his tenure, Arnold oversaw Australia's best-ever finish at a World Cup and two quarter-final exits at the Asian Cup.
He went precariously close to getting the sack in 2022 when Australia blew their hopes of direct World Cup qualification and had to rely on Andrew Redmayne's penalty shootout heroics against Peru to get to Qatar.
Once there, Australia knocked over Denmark and Tunisia before narrowly falling to eventual winners Argentina at the last 16 phase.
Following Australia's performance in Qatar, Arnold was rewarded with a new four-year deal by FA and turned down approaches to coach at club level to guide the Socceroos to the 2026 tournament, which will take place in USA, Canada and Mexico.
Arnold said in June of this year that he believed he had a squad capable of reaching the semi-finals in North America in two years' time.
But the former Sydney FC and Central Coast Mariners boss has opted to walk away from the final two years of that deal after an underwhelming start to the third round of qualification.
The Socceroos suffered a shock 1-0 loss to Bahrain on the Gold Coast before a frustrating stalemate against Indonesia.
Those two results in which the Socceroos failed to score, have left Australia second bottom in group C and their hopes of securing a top-two finish and automatic qualification on shaky ground.
Arnold was visibly frustrated after the Indonesia draw and vowed to go away and have "a really good think about things."
While many interpreted that throwaway line to suggest he would revamp his squad and tactics - Arnold's critics have frequently bemoaned Australia's lack of cutting edge against perceived "smaller" teams - the Socceroos manager has instead been considering his position.
Arnold met FA bosses earlier this week and indicated he would be willing to step aside after a challenging six-year tenure.
His exit leaves FA on the hunt for a Socceroos coach at the same time as they search for the next permanent Matildas coach.
The Socceroos will need to announce a squad for the October window fixtures with China and Japan in a little over a fortnight.
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