White House Chief of Staff Bill Daley has abruptly stepped down after a contentious year running President Obama's staff during which he clashed with some administration insiders who felt he gave away too much to Republicans in bitter budget battles.
He will be replaced by budget director Jack Lew.
"Bill told me that he wanted to spend more time with his family," Obama said from the State Dining Room. "Obviously this was not easy news to hear. And I didn't accept Bill's decision right away. In fact, I asked him to take a couple of days to make sure that he was sure about this."
A former banking executive, Daley has served as Obama's chief of staff since January 2011, succeeding Chicago Mayor Rahm Emanuel, who left the post to run for his current office.
Daley submitted his letter of resignation to Obama on Tuesday during a meeting in the Oval Office, a senior administration official confirmed on background. His resignation follows months of contentious budget battles with congressional Republicans, which left Democrats and the White House feeling particularly bruised.
He had been brought on to the Obama team to help ease the administration's tensions with congressional Republicans, but his brusque management style clashed with some White House staffers, and congressional Democrats groused that he ceded too much to Republicans during budget negotiations.
In November, Daley announced he was shifting most of his day-to-day responsibilities to longtime Obama aide Pete Rouse -- a move that appeared to be a demotion, though the White House insisted it wasn't. He also made it clear that he did not intend to stick around the White House beyond January 2013.
Even so, Obama did not expect this early a departure, especially heading into an election year, according to a senior White House official.
"Naturally, when Bill told me his plans to go back to [his hometown of] Chicago, I asked him who I thought could fill his shoes," Obama said. "He told me that there was one clear choice and I believe he's right. So today I'm pleased to announce that Jack Lew has agreed to serve as my next chief of staff."
Lew was deputy director of the U.S. State Department under Hillary Clinton before assuming his current role at the White House. He served as budget director during the Clinton administration and senior policy adviser to former House Speaker Tip O'Neill.
Details on Lew's replacement are forthcoming, White House officials said.
"I have every confidence that Jack won't miss a beat," Obama said. Lew and Daley, who stood on either side of the president, made no remarks.
The shift won't take effect until the end of the month, giving Lew time to work on the fiscal 2013 budget.