The 45-year-old has cited personal reasons for his departure, stating the commute from Liverpool was beginning to “take its toll”.
It’s understood this announcement has been in the offing for a while and is not related to the recent management changes at Bloomfield Road.
Murphy spent seven years with the Seasiders as a player, before returning in a coaching capacity in 2011 - a role he held until this summer.
“This is probably the hardest decision I’ve had to make in my career and it’s one that comes with a very heavy heart,” Murphy said in a statement.
“I’ve spent more than a third of my life at Blackpool and it’s going to feel strange not to be associated with the club anymore.
“The commute last season, with all the driving, was really getting to me and I feel that the club wouldn’t be getting the best out of me if I was to commit to doing it all again next season. It’s started to take its toll.
“I’m appreciative of the efforts that the club has made to try and keep me, but without moving closer to Blackpool, it just wouldn’t be viable for me to continue in my role at this stage of my life. That just wasn’t an option I was prepared to take. I need to be nearer to home.
“By reaching this decision, it feels like the end of an era, but the club is in the right hands and is moving in the right direction. I’m sure that the best possible appointment will be made to replace me.
“Finally, I’d like to thank everybody at Blackpool and all the fans for the support that they have given me throughout my time at Bloomfield Road. This is certainly the right decision for me, but I will always follow the club’s progress.”
Murphy was also part of the staff when Blackpool’s youngsters reached the semi-finals of the FA Youth Cup in 2018, losing to Arsenal across two legs in the last four.
The former striker famously turned out for the Seasiders during his playing career, scoring 83 goals in 229 appearances between 1999 and 2006, winning one promotion and claiming the LDV Vans Trophy twice.
Blackpool’s chief executive Ben Mansford has paid tribute to the outgoing Murphy, saying: “Although we are disappointed to lose John, we fully respect and understand the decision that he has reached.
“We are all really appreciative of the service John has given to Blackpool and wish him nothing but the very best for the future.
“He may now be stepping away from his day-to-day involvement at the club, but John will always be welcome back here at Bloomfield Road.”