Walt Natynczyk will become deputy veterans affairs minister, effective next week Monday, Prime Minister Stephen Harper said in a statement.
Natynczyk had been head of the space agency since August 2013, when he replaced former Canadian astronaut Steve MacLean.
In a separate statement released by the agency, Natynczyk said it was an honour to have served as its president.
"The agency has extraordinary potential and an exciting destiny," he said. "I believe in its employees. I believe in its mission.
"Space touches every Canadian, every day of their lives. No matter where I am, I will continue to support Canada's space program."
The retired military general served as the Canadian Forces' chief of defence staff from 2008 to 2012.
Industry Minister James Moore tweeted later on Wednesday that Luc Brule, the space agency's current vice-president, will take over on an interim basis.
Iain Christie, executive vice-president of the Aerospace Industries Association of Canada (AIAC), expressed surprise when informed of Natynczyk's move.
"It's not something we had prior knowledge of," he told The Canadian Press in a phone interview. "But that's not unusual."
The association represents about 100 of Canada's aerospace companies, including MDA, the builders of the Canadarm; Lockheed Martin Canada Inc; Magellan Aerospace; and Telesat Canada.
But Christie, who has had extensive dealings with the space agency, also sounded a positive note.
"Having General Natynczyk there I think has been very good for the agency and we're in a much better place than we were when he was originally appointed," Christie said.
"So I'm looking forward to working with whoever the government does appoint to keep the progress moving forward."
Marc Boucher, acting president of the Canadian Space Commerce Association, described the agency post as a revolving door.
"I'm surprised and I'm disappointed," he said. "Unfortunately it seems to be a pattern where presidents of the Canadian Space Agency don't seem to last long in the job for whatever reason."
He noted that, after being on the job for less than two years, Natynczyk has left a lot to be done, adding that employees at the agency are probably scratching their heads at developments.
Boucher, whose industry group represents about 40 small and large space companies in Canada, was harshly critical of the Harper government.
"It just shows that there's a lack of support for the Canadian Space Agency and the industry as a whole," he said.
"Basically the government has just been doing the least that it can to keep things going and I don't see anything changing in the near future."
The government now has an opportunity to find a new leader who will stay for a while, he added.
"I hope they find somebody to run the Canadian Space Agency for a longer period of term who will actually be able to do something constructive."
Marc Garneau, a Liberal MP and a former CSA president, had no comment.
An aide said Canada's first astronaut would wait to see who Natynczyk's replacement would be before speaking out.
"He's holding his fire for now," the spokesman added.
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