He snubbed the post-match press conference after yesterday's 2-2 draw with Chelsea after frenzied speculation over his future.
According to newspaper reports, Allardyce is keen on taking a short break before taking the manager's job at Manchester City next season.
After eight years at the Reebok stadium, Allardyce said it was time for a new challenge.
"It was mutually decided that I step down now rather than at the end of the season," Allardyce said in a statement.
"That will give my successor the ideal opportunity to experience the preparation and build up of matchday in readiness of next season.
"After guiding the team into a position where the club is on the very of qualification for European football for the second time in three years, I feel it is the right moment to step down.
"This has been one of the hardest decisions I've ever made but it's time for a new exciting era for Bolton under different leadership."
Chairman Phil Gartside refused to reveal the reasons for Allardyce's shock decision.
"I have reluctantly accepted the decision. His reasons are private, we respect that," Gartside told the club's website.
"Since joining the club as manager in 1999, he has helped lead a fantastic transformation of this famous Lancashire club.
"He has helped design and build an infrastructure that will enable the club to continue the progress we have undoubtedly made during his period of office."
Allardyce has endured a torrid 12 months which began with losing out on the England manager's job to Steve McClaren.
In September, he was forced to deny allegations made in the Panorama programme that he had been paid bungs by agents.
But on the pitch, he has masterminded Bolton's impressive season and they currently lie fifth in the table.
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