The man at the centre of a national storm over arts funding in Scotland has resigned, heralding more radical changes to arts quango Creative Scotland in the days ahead.

Andrew Dixon, chief executive of the body which annually distributes £80 million in Government and lottery funds, resigned from his post as the controversy over arts policy and funding engulfed the two-year-old organisation.

Two months after a devastating letter of criticism – signed by more than 400 of the nation's artists, writers, playwrights, musicians and composers – was sent to Creative Scotland, Mr Dixon is to leave the organisation in late January 2013. He will pick up a £60,000 resignation package, the equivalent of six months' salary.

The body said that Mr Dixon, who moved to Scotland following success as chief executive of the Newcastle Gateshead Initiative, was standing down to make way for a new leader to steer the organisation through the coming "period of change".

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This week the board – led by Sir Sandy Crombie, former chief executive of Standard Life – will meet to decide on internal reforms, which could lead to more significant changes at the beleaguered arts body.

The fall of Mr Dixon, who The Herald understands resigned voluntarily and was not "pushed", has capped a year of constant and growing controversy over both the funding policies of Creative Scotland and the way it speaks and relates to artists.

Its decision to cut short-term regular funding to more than 40 arts companies attracted bitter criticism with further condemnation for its role in commissioning art projects.

The divisions have led to what has proven to be a fatal lack of trust between leading artists and companies and Creative Scotland's senior management.

During the organisation's calamitous year, leading Scottish poet Don Paterson referred to it as a "dysfunctional ant-heap" while the damning artists' letter, signed by figures such as John Byrne, Sir Peter Maxwell Davies, Alasdair Gray, James Kelman, AL Kennedy, Liz Lochhead, and Ian Rankin criticised its "ill-conceived decision-making; unclear language and lack of empathy and regard for Scottish culture".

Mr Dixon said: "I have been disappointed, given my track record, not to gain the respect and support of some of the more established voices in Scottish culture and I hope that my resignation will clear the way for a new phase of collaboration between artists and Creative Scotland."

Last night, the leading playwright David Greig, who has been a prominent critic of the body, said: "Andrew's done the right thing.

"It can't have been easy for him, but his decision clears the way for a new start and allows the board to begin the process of rebuilding trust and moving forward in co-operation with artists, companies and representative bodies."

The board will now search for a new chief executive with the senior management team of Venu Dhupa, Iain Munro and Caroline Parkinson, whose own roles will now be under scrutiny, to report directly to Sir Sandy Crombie.

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The unfolding crisis has proven to be embarrassing for the Scottish Government, given that its Year of Creative Scotland 2012 has been dominated by negative headlines about the funding body, rather than a celebration of Scottish culture.

A key internal report, written by board member Ruth Wishart, will be presented to the board tomorrow.

It is thought to include a summary of criticisms of the organisation plus recommendations on how to improve its funding process and its relationship with artists and companies.

The Herald understands the entire structure of Creative Scotland, which was formed out of a merger of the Scottish Arts Council and Scottish Screen two years ago, is to be examined, with implications for its existing senior management team and its specialist experts internally.

Fiona Hyslop, the Culture Secretary, said: "In more than two years at Creative Scotland, Andrew Dixon has been a vigorous advocate for Scottish culture and the creative industries.

"His energy and enthusiasm have been key to establishing Creative Scotland as Scotland's national arts body. I thank him for his commitment and contribution."

Sir Sandy Crombie said: "As a new organisation with an extensive remit, there have been inevitable challenges during this period and Andrew has consistently led the organisation with energy, passion and enthusiasm.

"He has also taken every opportunity to be a vociferous champion and advocate for Scottish arts and culture."