Paul Appleby is to remain on in his position as Director of Corporate Enforcement for six months pending the appointment of a replacement.
It is understood he agreed the measure with the Government today to facilitate a smooth transition for his replacement and his continued leadership of the Anglo investigation.
Mr Appleby said this morning that his decision to retire would not impede the office's work in the Anglo Irish Bank investigation and said if his assistance was required, he would make himself available.
He said the decision to step down "followed a period of reflection and discussion of my position with my wife and family in recent weeks".
Mr Appleby will be paid a retirement lump sum of €225,000 and have an annual pension of €73,000 following his 39 years of service in the civil service.
He will receive the first €200,000 of his lump sum tax-free.
His current salary of €146,000 is in line with pay for an assistant secretary general for a Government department. It was reduced from €150,000 in January 2010.
Minister for Public Expenditure and Reform Brendan Howlin has welcomed the fact that Mr Appleby will stay in his job for another six months.
Mr Howlin said the Government is keen that the very important inquiries being carried out by Mr Appleby's office carry on in a seamless fashion and come to a conclusion.
Speaking on RTÉ's Six-One News, Mr Howlin said that after engaging with Mr Appleby today he is glad there will be no disruption to his work.
He said the first he heard of Mr Appleby wanting to retire was at Cabinet today from Richard Bruton, but he understood a letter was received in the Department of Jobs and Enterprise in the last day or two.
Mr Howlin said he had asked last year for anyone contemplating leaving to give as much notice as they could, so departments could plan to ensure there is no disruption to the general work of the public services.