Sorrell, 73, stepped down suddenly, 10 days after the British ad giant launched an independent investigation into allegations of personal misconduct through the misuse of company assets.
WPP said the probe had concluded, adding that "the allegation did not involve amounts that are material".
The departure of one of Britain's best-known businessmen leaves the advertising giant needing fresh leadership at a testing time for the marketing industry, with social media companies offering brands a direct connection with vast audiences.
Sorrell said in a statement late Saturday that he was sad to leave, with WPP having been his passion and focus for more than three decades.
"The current disruption is simply putting too much unnecessary pressure on the business, our over 200,000 people and their 500,000 or so dependents, and the clients we serve in 112 countries," he said.
"That is why I have decided that in your interest, in the interest of our clients, in the interest of all share owners, both big and small, and in the interest of all our other stakeholders, it is best for me to step aside." Sky News television's City editor Mark Kleinman said his resignation was one of the most significant exits of a FTSE 100 company chief executive for many years.
"His departure will leave the company he built virtually from scratch facing profound questions about its future direction," he said.
Despite the misconduct investigation, some commentators said it was the fact that the company had lost a third of its value over the past 12 months -- in the face of competition from the likes of Google and Facebook -- that cost Sorrell his post.
However, "in the end, it was the trends in world business that wrong-footed the sprawling empire he created.
"Shareholders were getting restless," he wrote, and Sorrell "had lost the unanimous backing of the board".
WPP said Sorrell would be treated as having retired, with chairman Roberto Quarta becoming executive chairman until a new chief executive is appointed. "Sir Martin has been the driving force behind the expansion of WPP to create the global leader in marketing services," said Quarta.
"During this time, the company has been successful because it has valued and nurtured outstanding talent at every level." Sorrell denied any wrongdoing after the allegations surfaced earlier this month, but said he understood the company had to investigate.
Born in London, Sorrell studied economics at the University of Cambridge and then gained a masters from Harvard University. He joined the Saatchi and Saatchi advertising agency in 1975 before founding WPP.
The firm has grown into one of the world's largest communications groups and now has some 3,000 offices.
According to research from the High Pay Centre think-tank, Sorrell was Britain's best-paid boss in 2015, with a package of more than ?70 million ($100 million, 80 million euros) that year.
However, he always fiercely defended his income, saying it was related to how well the company he started from nothing was doing.
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