He will work as a consultant, with some NHS advisory contracts, and will not apply for the role of Chief Executive of NHS England.
Farrar has been a strong advocate of a planned shift of healthcare from the hospital to the community, and his resignation could be taken as evidence that his vision of the NHS is not shared by the Government.
The NHS Confederation, which represents all NHS organisations, noted that Farrar “will not receive any form of severance payment”.
Farrar took up his current role in May 2011 after leading the North West Strategic Health Authority since 2006.
He had previously led the South Yorkshire and Tees health authorities, and been the DH director of primary care, as well as national tsar for sport and health.
He has gained a strong reputation for promoting innovation in service delivery and partnership with the life science industries.
Recently, he has argued that the development of community-based healthcare needs major infrastructural investment financed by a downsizing of acute care.
Farrar commented on his resignation: “It has been an enormous privilege to work in the NHS for more than two decades. I have had the opportunity to lead work at the NHS Confederation, in the North West and nationally in the DH.
“The real sense of career satisfaction is to have been able to shape and see real improvements in patient care, delivered according to need and never ability to pay.”
Michael O’Higgins, Chair of the NHS Confederation, said: “Mike Farrar has reinforced the NHS Confederation as the voice of the NHS. His NHS career marks him out as one of the leading public servants of his generation.”