The decision announced today in St. John's comes just two weeks after Aylward failed to win a seat in the provincial election.
The Liberals won six seats to remain as official Opposition, but Aylward lost in St. George's-Stephenville East to Tory incumbent Joan Burke.
The 51-year-old Aylward won the Liberal leadership in August after Yvonne Jones stepped down for health reasons.
An interim leader will be named at a later date.
Aylward is a former provincial cabinet minister who left politics in 1993 after representing the Stephenville area for 18 years.