James Murdoch has stepped down as executive chairman of News International, the UK newspaper business that owns the Sun and the Times titles.
The newspaper publisher has been tainted by phone-hacking allegations.
The scandal led the company to close its News of the World title in July last year.
Mr Murdoch will remain as deputy chief operating officer of parent group News Corporation, run by his father Rupert.
James Murdoch, 39, said: "I deeply appreciate the dedication of my many talented colleagues at News International who work tirelessly to inform the public."
He added that the launch of a new Sunday edition of the Sun and "new business practices" put the company in a "strong position" for the future.
The Labour leader Ed Miliband said it was "right" that James Murdoch had resigned.
"News International thought it was too big to be challenged, including by politicians. That's why we need new rules in place at the end of all this process so that one organisation cannot control that much of the newspaper and television market," Mr Miliband said.
Last year, James Murdoch twice appeared before the UK Parliament's Culture, Media and Sport Committee to answer questions as part of its inquiry into the phone-hacking scandal.
Rupert Murdoch, chairman and chief executive of News Corporation, joined his son at one of the hearings.
Paul Connew, a former News of the World deputy editor, said he was not surprised that James Murdoch had stood down.
"I think you've got to look at the bigger picture here," said Mr Connew.
"Quite clearly there's going to be criticism of James Murdoch in the culture and media select committee report, which presumably will be coming out in the not too distant future, and I think essentially he's been moved out of the firing line."
James Murdoch's departure also comes as the separate Leveson Inquiry continues to investigate the culture, practices and ethics of the British press as a result of the phone-hacking allegations.
This is continuing to throw a spotlight on activities at both the News of the World and the Sun.
Earlier this week, Metropolitan Police Deputy Assistant Commissioner Sue Akers told the inquiry that evidence suggested there was a "culture of illegal payments" at the Sun.
'Nothing more to offer'
BBC business editor Robert Peston said he had been told by a senior News Corporation executive that the company's UK newspaper business "did not need more than one Murdoch in charge".
"What he meant is that Rupert Murdoch, with the launch of the Sun on Sunday, is showing that he is back overseeing the group's British newspapers," said our business editor.
"So James Murdoch can concentrate on what he is said to enjoy most, which is running News Corporation's television interests outside the US."
The journalist and broadcaster Andrew Neil, a former editor at News International's the Sunday Times, agreed.
"His father was very unhappy that he had to close News of the World. He did so at James's urging - James was the guy on the spot and he decided to follow his son's advice," Mr Neil told the BBC.
"My understanding is he very much regrets that now, hence the steeling up with the launch of the Sun on Sunday.
"I think Rupert, who can be just as robust with his family as he can be with editors and executives who don't have the Murdoch gene in them, has decided James has nothing more to offer here in London."
In a statement, Rupert Murdoch said: "We are all grateful for James' leadership at News International and across Europe and Asia, where he has made lasting contributions to the group's strategy in paid digital content and its efforts to improve and enhance governance programs."
He added that James would now "continue to assume a variety of essential corporate leadership mandates, with particular focus on pay-TV businesses and broader international operations".
James Murdoch also remains chairman at satellite broadcaster BSkyB, of which News Corporation owns 39%.