The former Tory leader is also to step down as MP for the North Yorkshire seat of Richmond next year. He will be replaced at the Foreign Office by Defence Secretary Philip Hammond.
It is a surprise move that briefly left a vacancy at one of the three most prized jobs in Government. He will take the post of leader of the Commons. Mr Hamond took over the Defence post after the resignation of Scots-born Liam Fox in 2011.
Mr Hague, 53, has been in the post since David Cameron's party formed a Coalition with the Liberal Democrats after the 2010 general election.
The Prime Minister David Cameron said Mr Hague had been one of the Conservative Party's "leading lights" for a generation and had been a "close confidante, wise counsellor and great friend".
Mr Cameron tweeted: "I'd like to pay an enormous tribute to @WilliamJHague who is standing down as an MP at the next election. Until then, I'm delighted he'll remain my de facto political deputy, play a key campaigning role and be Leader of the House of Commons."
His departure was confirmed several hours after former Chancellor Kenneth Clarke announced he was retiring in a widely anticipated move.
But Mr Hague, who last month attended a conference in London with campaigning Hollywood star Angelina Jolie and her actor husband Brad Pitt on ending child sexual exploitation in underdeveloped countries, had been expected to stay on at the Foreign Office.
He has also been heavily involved in the Government's recent involvement in dealing with upheaval in Syria and the Middle East.
In a statement tonight, Mr Hague - who led the Conservatives in Oppposition from 1997 to 2001 - said it was a privilege to have served in Government.
Earlier, 74-year-old Mr Clarke ended a front bench career stretching back to 1972 as David Cameron embarked upon a reshuffle of his team ahead of next year's general election.
The Minister without Portfolio spent four years in Mr Cameron's Coalition cabinet after the 2010 election.
He said in a letter to the PM: "I understand that you are proposing to re-shuffle the Government this week and I am writing to let you know that I would wish to retire from Ministerial office in your Government.
"I have greatly enjoyed my four years in your Cabinet and my spell in the National Security Council. I have been heavily engaged in some parts of my portfolio such as the EU/US Trade Agreement, economic reform in Europe, support for small business, export finance, the fight against corruption, secure hearings in Courts and so on.
"However, I have just celebrated my 74th birthday and I have been doing red boxes at night for a high proportion of my adult life. There are plenty of other able people who could take on the work that I was doing in Government and I think the time has come to return to being a veteran back bencher.
He later added that he had been watching cricket, instead of doing his job lately.
Mr Clarke added that he was "demob happy" for some time and had spent more of the past week at the England versus India cricket test match than in his office.
He told ITV News: "I shall carry on being MP for Rushcliffe. I'm afraid I'm a lifelong addict to politics."
Mr Clarke said he had enjoyed a "good long innings" in Government and would continue to be "largely supportive" of Mr Cameron from the back benches."
David Jones was sacked as Welsh secretary, universities minister David Willetts is understood to have stood down and declared his intention to quit as an MP next year while Nick Hurd said he was leaving his post as minister for civil society.
Damian Green has left as policing minister; Alan Duncan has gone from international development and Andrew Robathan, from Northern Ireland. Attorney General Dominic Grieve is also leaving his post.
Energy and Climate Change Minister Greg Barker, announced he was standing down from Government and would not seek re-election in Bexhill and Battle next year.
He said he was "very pleased" to have served in environment and climate change posts for 10 years in opposition and Government and had a "terrific time".