The Prime Minister's Office says Fadden's transfer takes effect May 13.
Michel Coulombe, currently deputy director of operations at the spy agency, will become interim director when Fadden leaves.
Fadden has been head of CSIS since June 2009.
He was the subject of some controversy in June 2010, when he said in an interview that foreign countries were both conducting industrial espionage against Canada, and trying to influence Canadian politicians.
Robert Fonberg, currently deputy minister at Defence, has been named a special adviser to the clerk of the Privy Council.