The abrupt departure is a fresh blow to the Glasgow club, Scottish champions a record 54 times, who had to relaunch from the fourth tier in Scotland after their former parent company collapsed under a pile of debt.
Green faced a club inquiry into media reports he had secretly been working during his takeover with former owner Craig Whyte, who had been barred from playing any part in Scottish football. Whyte was the majority shareholder when Rangers went into administration in February 2012.
"Whilst Mr Green strenuously denies any wrongdoing, he has recognised that this negative publicity is a distraction and is detracting from the achievements and reputation of the club," Rangers said in a statement.
Green, who owns a stake of around eight percent in Rangers, is stepping down from the post with immediate effect and the club said they had already begun to seek a successor.
He is expected to retain his shares in the club.
"I feel that it is appropriate that I step down so that the club can continue to progress back to where it belongs at the pinnacle of Scottish football," Green said on Friday.
Rangers remain one of the best supported clubs in Britain, regularly attracting crowds of over 40,000 to their Ibrox stadium. They have won the Scottish third division with ease.
The club also appeared to be recovering off the field.
Rangers had returned to the stock market in December, raising 22 million pounds from investors in a flotation and have signed new deals with Blackthorn Cider and Puma for their shirt sponsorship and kit supply.
Green, an Englishman, had argued passionately that Rangers and their city rivals Celtic were too big for the Scottish game and should be integrated into the wealthier English structure.
He had suggested that the Glasgow clubs could leave their junior teams to compete north of the border.
