"After careful consideration, I believe it’s time for new leadership to take the team forward," stated the 61-year-old, who had been at the helm since 2018.
Arnold's departure comes after a surprising 1-0 loss at home to Bahrain earlier this month, followed by a goalless draw against Indonesia, leaving Australia with just one point from their first two matches in this critical qualifying round.
In post-match discussions after the draw with Indonesia, a visibly frustrated Arnold expressed his disappointment over the team's failure to capitalize on numerous scoring opportunities.
Bayern Munich's young talent, Nestory Irankunda, came close to scoring but hit the post, as the Socceroos managed 19 shots without finding the net for the second consecutive game.
"I mentioned after the match against Indonesia that I had some decisions to make, and after thorough reflection, I feel it’s time for a change, both for myself and the program," he remarked.
"I have dedicated everything I could to this role and take immense pride in what has been accomplished during my time."
Arnold, a former Australian international, took over the coaching position in August 2018 from former Netherlands manager Bert van Marwijk.
He led Australia to the Round of 16 in the 2022 World Cup, where they faced eventual champions Argentina, narrowly losing 2-1 after goals from Julian Alvarez and Lionel Messi.
The Socceroos achieved their best-ever World Cup performance by defeating Denmark and Tunisia in the group stages, although Arnold faced criticism for the team's perceived lack of style and overly defensive tactics.
This was Arnold's second term as head coach, having previously served as interim coach from 2006 to 2007.
Under his leadership, Australia set a record by winning 11 consecutive matches to qualify for the last World Cup, a feat unmatched in FIFA history.
With a win ratio exceeding 60 percent, Arnold ranks among Australia's most successful coaches.
James Johnson, the chief executive of Football Australia, stated, “Graham Arnold’s exit signifies the conclusion of a significant chapter in Australian football.”
He added, “During Graham’s tenure, we reached extraordinary achievements that enhanced the profile of Australian football internationally.”
Australia is currently in the process of finding an interim coach in preparation for next month’s qualifiers, which include a home match against China and an away game against Japan, as they aim for their sixth consecutive World Cup appearance.
Johnson emphasized, “With important FIFA World Cup qualifying matches on the horizon, it is essential that we select the right individual to guide our talented team both now and in the future.”