General Pierre De Villiers, 61, presented his resignation to Emmanuel Macron on Wednesday morning.
In a statement De Villiers, who took over in February 2014, said he no longer felt able to command the sort of army “that I think is necessary to guarantee the protection of France and the French people”.
He and Macron were due to meet on Friday in a bid to smooth over what had become a very public row over government cuts to the armed forces.
De Villiers, whose role as head of France's armed forces was prolonged by Macron back in June, had initially publicly complained about the government's plan to cut the military's budget by €850 million, predominantly by saving money on equipment.
The irate De Villiers, known for talking frankly, told a parliamentary committee: “I won't let you screw me like that” (Je ne me laisserai pas baiser comme ça).
That prompted an angry Macron to make a speech at the Ministry of Defence last week in which he bluntly reminded those present that: “I am your boss”.
“It is not dignified to hold certain debates in the public arena,” Macron told those present with de Villiers clearly in mind.
Telling them he will stick to his commitments to make cuts he said: “I don't need pressure or commentary”.
In a later newspaper interview he said: ““If the [Armed Forces] chief of staff has an issue with the President of the Republique, it is the chief of staff who will change his position.”
The president was criticized by some for his public dressing down of De Villiers in front of his “subordinates”.
The army chief was clearly not impressed either and by deciding to step down handed Macron his first major crisis as president.
Experts warned that Macron's decision to publicly scold a general in front of his own men was always like to provoke a response.
“Armies basically obey. So in substance the president was within his rights to restate his authority,” a former chief of the French armed forces Henri Bentégeat told Le Monde newspaper.
“But the way he did it will leave marks. You cannot publicly question a military leader like that in front of his subordinates,” said Bentégeat, who said that the head of the armed forces was “just doing his duty” by defending the budget for the military.
“When Macron attends the first ceremony for a soldier killed because of a lack of equipment, all the criticism will be directed at him,” said Bentégeant.
Reports suggested Macron, France's youngest ever president, had shocked many of his own MPs and ministers in his decision to rebuke De Villiers.
On Wednesday the country's Foreign Affairs Minister Jean-Yves Le Drian, who earned the army's respect as minister of defence under Macron's predecessor François Hollande, paid tribute to De Villiers.
“He is a great soldier, one of great integrity and intelligence,” said Le Drian.
But De Villiers had history when it came to rows over cuts to the budget.
Not long after taking the job in 2014, he threatened to walk out along with three other top generals over planned budget cuts. Thanks to Le Drian, the cuts were never made.
De Villiers said Wednesday that throughout his career, he had believed it was his duty to tell politicians “of my reservations”.
Macron is now tasked with finding a replacement, one that accepts hefty cuts to the military's budget and who like De Villiers, commands the respect of the military.