Last week Grey refused to comment on reports that Lace was to go as speculation swept adland that he was on the way out after being appointed as chief executive in October 2002.
In a statement issued by Grey the agency said that after orchestrating "one of the most successful periods in Grey London's history, Garry has decided that now is the right time to move on to pursue other interests".
"This has been a difficult decision for me but I'm proud to be leaving Grey in much better shape. The management team that I've brought together have the talent and ambition to take Grey on to even bigger and better things," Lace said.
His immediate departure has sparked a shake-up of the management team that sees executive creative director Dave Alberts appointed to the new position of chairman of the London agency. He will also retain his current position, to which he was appointed to by Lace in February last year.
Lace's exit follows an abortive attempt last week to track down the author of a hoax email that implicated Lace in setting up a loyalty scheme in partnership with Drew Thomson, the managing director of Air Miles, a Grey client.
Lace always denied any plans to set up a venture with Thomson, with whom he is close friends. They worked together when Lace ran the Air Miles account at his old agency TBWA\London before it moved and followed him to Grey. Last year the two also talked of swapping jobs but this plan failed to get off the ground.
Lace called in the police to track down the author of the hoax email, and Grey human resources consultant Lou Burrows viewed internet cafe security tapes from where the email was sent but failed to identify the culprit.
Some at Grey will not be sorry to see Lace go -- he has made around 50 people redundant during his time at the agency.
In his new role as chairman Alberts will be supported by a management team comprising managing director Chris Hirst, business development director Nicola Mendelsohn and executive planning director Dylan Williams.
Carolyn Carter, president of Grey Global Group Europe, Middle East, Africa, said: "Grey has been committed to bringing top talent and renewed creative focus to our agencies across Europe. This change in London embodies this commitment."
"In Dave, Nicola, Chris and Dylan we have a talented team, which has re-energised Grey London, earning the respect of clients and peers alike," she added.
If you have an opinion on this or any other issue raised on Brand Republic, join the debate in the .