Despite guiding Leeds to 15th in the standings in 2013-14 and preserving their Championship status, McDermott has decided to call time on his tumultuous tenure at Elland Road.
McDermott was facing an uncertain future at Elland Road after controversial businessman Massimo Cellino seized control in January.
Cellino confirmed the news in a statement published on the club's website: "Brian is a great manager and a great guy. He has been unfortunate to work in such difficult circumstances.
"I did not fully understand the mess he had to work in, and the broken promises he had to deal with, until I have got involved trying to turn Leeds around."
Cellino added: "He has been a gentleman to deal with in our discussions and has been very understanding of my wish to implement a new structure.
"His main concern and priority at all times has been the welfare and protection of Leeds United.
"I wish him well for the future where I am sure he will continue to have more success and thank him for his efforts in being a stabilising and unifying figure behind the scenes in very difficult circumstances."
McDermott's time in charge of Leeds was marred by controversy after joining the club from Reading in April 2013.
There was confusion when he appeared to be sacked in February, only to be reinstated ahead of Cellino's impending arrival.
The 53-year-old, who guided Reading to the Premier League in 2012, said: "It is clear that Massimo wishes to implement a new structure and feels he will work more successfully for Leeds with a coach rather than a manager.
"I respect that Massimo must be fully supported in putting together his vision for the club so he can bring us the success we all want. It is my belief that when truly United we are stronger.
"Massimo wants to bring a new energy to the club so that we can return to where we belong as a healthy football club."
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