The 52-year-old Christian Democrat (CDU) said he would stay in office until August 31.
"I specifically picked out this point in time," he said at a press conference in the state capital Wiesbaden. "Politics is a fascinating part of of my life, but politics isn't my life."
Though many were caught off guard by the announcement, Koch said Chancellor Angela Merkel bad been aware of his plans, if not the exact timing of his departure, for the past year.
Koch said he planned to seek work in the business sector, but would only decide what position to pursue after leaving office. Besides resigning as state premier, Koch will also give up his leadership of the Hessian Christian Democrats and his deputy chairman position of the national CDU.
"That's a huge loss for the CDU, the state of Hesse and the federal government," Michael Meister, a Hessian Christian Democratic MP, told the website of Der Spiegel magazine. He called Koch a "great politician with unusually clear policy positions."
A conservative hard-liner, Koch has become a polarising figure in his state in recent years. Premier since 1999, voters punished his Christian Democrats during an election in 2008 after he started a controversial campaign with racist overtones against young immigrants. His image was first seriously tarnished for his involvement in a party slush fund scandal in 2000.
“Roland Koch's resignation marks the departure of someone who was never afraid to campaign with prejudices against foreigners or demands to punish welfare recipients,” said Jürgen Trittin, the parliamentary leader of the Green party.
Lately Koch made headlines by demanding deep cuts in education and childcare funding in Hesse and the rest of Germany, eliciting the ire of the chancellor. He has long been considered an inner-party rival to Merkel, but she played down their contentious relationship on Tuesday.
"Roland Koch was always a good, friendly advisor," said Merkel. "We will continue to call on his counsel in the future."
Hessian Interior Minister Volker Bouffier is reportedly in line to replace Koch as state premier.