Klees, who represents Newmarket-Aurora, denied his decision had anything to do with the Ontario Progressive Conservatives election fortunes. He explained it was time to end his time as the Tories representative in Newmarket-Aurora.
He said after being in public life for 20 years, it was time to return to the private sector, though he said his future plans were not clear.
He will remain as MPP until the election, expected this spring.
Klees ran for leader of the Ontario Tories twice, and lost both times, to John Tory in 2004 and to Hudak in 2009. He was rumoured to be involved in a short-lived party effort to oust Hudak last year.
However Klees dismissed suggestions he will launch another leadership campaign if Hudak fails to lead the Tories to victory, and insists leaving is "absolutely not" an indication Hudak's leadership.
Klees admits he and Hudak had their differences, but insists both remain committed to Conservative ideals and to defeating the Liberal government.
He was one of the two Tory caucus members who supported a grassroots call for a leadership review last year, but later declared his support for Hudak.
Hudak agreed Klees would retain his critic responsibilities and thanked Klees for his service to the province, the party and his constituents.
He was first elected to the legislature in 1995 and re-elected in 1999, 2003, 2007 and 2011, serving under premiers Mike Harris and Ernie Eves as chief whip and as minister of tourism and minister of transportation.
His retirement announcement comes amid campaigns for two byelections in Niagara Falls and the Toronto area riding of Thornhill.