In a statement, the firm said: "The previously announced investigation into an allegation of misconduct against Sir Martin has concluded".
Sky News has learnt that WPP, which owns a string of global advertising and media buying networks supplying numerous world's biggest companies, is preparing to announce Sir Martin's departure as soon as Saturday night.
One of UK's top-paid executives.
"Obviously I am sad to leave WPP after 33 years", Sorrell says in a statement.
The company said Sir Martin will be treated as having retired, with chairman Roberto Quarta becoming executive chairman until a new chief executive has been appointed.
The company added that the allegations did "not involve amounts which are material to WPP", implying that the potential misuse of company funds formed part of the probe. Sorrell has denied the allegations, details of which have yet to publicly surface.
Mark Read, chief executive of Wunderman and WPP Digital, and Andrew Scott, WPP corporate development director and chief operating officer, WPP Europe, have been appointed as joint chief operating officers of WPP.
Sorrell, who will continue to be available to the board with his valued guidance signed off saying, "As a Founder, I can say that WPP is not just a matter of life or death, it was, is and will be more important than that".
He had been under investigation by WPP but had rejected any claim of financial impropriety. "Most of my wealth, if not all of it, is and has been for the last 31 years tied up in the success of WPP".
Sir Vince Cable, the Liberal Democrat leader and former business secretary, said the lack of transparency was "profoundly unsatisfactory".
However, his departure will leave the company he built virtually from scratch facing profound questions about its future direction. Some of its biggest clients include Unilever and Procter & Gamble.
That has left WPP and its peers - the French group Publicis and Interpublic of the United States - being buffeted by headwinds which also include the disintermediation of digital platforms such as Facebook.
However, the firm has struggled in the past year, with shares falling back from heights above £19 in February to less than £12 at the close of markets last Friday.
Shares in WPP are expected to fall tomorrow when the markets open.
WPP declined to comment on Saturday evening, while Sir Martin could not be reached for comment.