Mr Ma, one of China's richest men, will hand over the reins to Daniel Zhang, now Alibaba's chief executive. Ma handed over the CEO's post to Zhang in 2013 as part of what he said was a succession process developed over a decade.
Afterwards the 54-year-old entrepreneur plans to stay on the board of directors until the annual shareholders meeting in 2020.
"I will work closely with Daniel to ensure a smooth and successful transition", Ma said in a letter released by the company.
But it is still extremely rare for a founder of big and transformative tech firm, especially one with a cult-like status like Ma, to retire so early.
He said Mr Zhang, who has been with Alibaba for eleven years, had demonstrated "superb talent" since taking over as chief executive.
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The report of his retirement came as a surprise, especially in the Chinese government circles as the NYT report said Mr. Ma was relinquishing as China's business environment had soured, with the government and state-owned enterprises increasingly playing more interventionist roles with companies.
"Ma is a lifetime partner in the Alibaba Partnership and is a member of its partnership committee", the statement added.
Alibaba saw sales at its e-commerce business swell 61% in the latest reported quarter, but its profit margins have been squeezed by big-ticket investments as it battles to maintain its dominant position in e-commerce and payments.
The charismatic Mr Ma, who is known for dressing like a rock star, said he wanted to return to education.
Alibaba also has investments in sports content, microchips and facial recognition technology and has been positioning itself as a serious player in cloud computing.