The spinoff aims to raise money to support the newly merged carmaker's plans to invest 48 billion euros ($61 billion) over five years to compete with global giants Toyota and Volkswagen. Shares in Fiat Chrysler soared on the news.
"I think we are doing the right thing by giving Ferrari a proper, unique place in the capital markets to be evaluated and valued as a luxury automaker," Marchionne told an analyst conference call.
Fiat Chrysler, which owns 90 per cent of Ferrari, will sell 10 per cent of its shares in a public offering, and distribute the remaining 90 per cent of its holding to its own shareholders.
Marchionne refused to speculate on Ferrari's value, saying only "I think we will be pleasantly surprised."
Investors seemed to agree. Shares in Fiat Chrysler jumped 10.6 per cent to 8.43 euros in Milan, and 11.93 per cent to $10.88 on the New York Stock Exchange.
The news of the spinoff was coupled with an announcement that Fiat Chrysler will issue $2.5 billion in convertible bonds to help fund its business plan.
The board intends to complete the spinoff during 2015, and said shares would be listed in the United States, with a possible double listing in Europe, as Fiat Chrysler has done.
A Ferrari spinoff had long been speculated by industry experts as Marchionne seeks to maximize values from the group's brands. Fiat Chrysler's other luxury brands, including Alfa Romeo and Maserati, will remain part of the parent company, and are a key part of Marchionne's plans to focus production in Italy on higher-margin luxury cars.
The decision to break off Ferrari comes about two months after an awkward management transition at Ferrari that saw longtime chairman Luca Cordero di Montezemolo resign after a public spat over strategy with Marchionne, who has since taken over his job.
Marchionne has been vocal in his displeasure over Ferrari's long absence from the Formula One car racing winner's circle, and has pledged to get the team back to the top. The last time it won the driver's championship was in 2007.
"I think we need to continue to protect Mother Goose, which is the production of cars, and we need to get back on the track and start winning again, which is part of the DNA of the house," Marchionne said.
Ferrari has limited production to 7,000 vehicles a year to maintain its exclusivity, and Marchionne said production would be increased only to match an expansion in the customer base.
Also Wednesday, Fiat Chrysler Automobiles N.V. announced it returned to a profit in the third quarter thanks to a good performance by its luxury brands and gains in North America and Asia.
It made a net profit of 174 million euros ($221 million) for the three months ending Sept. 30. That compares with a loss of 15 million euros in the same period last year. Revenues rose 14 per cent to 23.5 billion euros.
Ferrari and Maserati combined earnings before interest and tax were 484 million euros, up 55 per cent from a year ago.
Deliveries rose 9.7 per cent to 1.1 million vehicles. Marchionne said he expects 2015 volumes to rise 5 per cent above 2014 levels, to 4.7 million units, boosted by ramp ups in Jeep and Fiat 500 production and the launch of Alfa Romeo into the U.S. market next year.