The announcement came as the retailer revealed dismal Christmas trading figures, with like-for-like sales at its general merchandise (GM) division, which includes clothing, down 5.8% - this was partly blamed on warmer than usual weather.
Mr Bolland - who previously ran supermarket Morrisons - has led M&S since 2010. He has come under sustained pressure over poor fashion sales while trying to address the decline with management shake-ups and high-profile celebrity ad campaigns.
He will be succeeded by GM boss Steve Rowe in April and remain with the company until the end of June to assist with the transition.
Mr Rowe, a veteran with more than 25 years at M&S, led the retailer's food division to 12 successive quarters of growth before being moved to GM in July to try to turn around its performance. As the new chief executive, he will receive a basic salary of £810,000 and the same bonus terms as the current boss.
Mr Bolland will continue to receive his salary, pension and other benefits until next January and remain eligible for a potential bonus for the current financial year - but not for 2016/17.
M&S said that it had "faced challenging trading conditions" including unseasonal weather - which hit sales across the clothing sector and drove discounting from Black Friday and intensifying through December.
The company said this hit sales though profit margins were protected. M&S also said it "fell short on availability" in the division.
"We acknowledge there is more to do to address the disappointing GM sales, and the new team are focused on the three key priorities of availability, ranging and design."
The poor figures for general merchandise in the trading period covering the 13 weeks to 26 December masked another improvement for Marks's food division, which it said enjoyed its best ever Christmas.
Like-for-like sales rose 0.4% in a grocery sector where many retailers are experiencing decline amid a fierce price war - including Waitrose, which targets a similar upmarket clientele.
Marks & Spencer's website also saw strong growth, up 20.9%. The company said its international business faced a tough economic environment, particularly in the Middle East though there was a strong performance in other areas such as India.
Mr Bolland said: "M&S had an excellent Christmas in food, delivering record Christmas sales and strongly outperforming the market. General merchandise sales were disappointing."
