James Murdoch stood down as chairman of broadcaster BSkyB on Tuesday amid an ongoing investigation into phone hacking at News International, saying he did not want to be "a lightning rod" for the company.
He will continue on as non-executive director, News Corp said, and will be succeeded as chairman by Nicholas Ferguson, who was appointed as a director of the company in June 2004 and previously served as deputy chairman.
Murdoch said in a statement: "I have been privileged to serve first as chief Executive and then as chairman of this outstanding company and I am proud of what we have achieved over this period."
"As attention continues to be paid to past events at News International, I am determined that the interests of BSkyB should not be undermined by matters outside the scope of this company. I am aware that my role as chairman could become a lightning rod for BSkyB and I believe that my resignation will help to ensure that there is no false conflation with events at a separate organisation."
Rupert Murdoch said in a joint statement with News Corp COO Chase Carey: "We are grateful for James Murdoch's successful leadership of BSkyB. He has played a major role in propelling the company into the market-leading position it enjoys today - and in the process has been instrumental in creating substantial value for News Corporation shareholders.
"We look forward to BSkyB's continued growth under the leadership of Nicholas Ferguson and Jeremy Darroch and to James' continued substantial contributions at News Corporation."
The development comes just over one month after Murdoch stepped down as Executive Chair Of News International saying he would focus on "pay-TV businesses and broader international operations". He also recently stepped down from the boards of auctioneer Sotheby's and pharmaceutical firm GlaxoSmithKline.
Murdoch serves as deputy chief operating officer at News Corp, BSkyB's controlling shareholder with a 39% stake and the owner of News International.
News Corp had to withdraw a bid to buy the whole company in July as the hacking scandal began to engulf the company.
News International publishes The Times, the Sunday Times and the Sun, and published the News of the World before it was shut down.
James Murdoch: Profile Of Rupert's Embattled Heir Apparent
Phone Hacking: Timeline Of The Scandal
Murdoch was appointed chairman of BSkyB in December 2007, and was formerly chief executive of BSkyB between February 2003 and December 2007.
His decision to stand down comes just weeks before a report by the House of Commons Culture, Media and Sport Committee into reporting practices at the News of the World.
Media regulator Ofcom is likely to extend its inquiry into Murdoch if the parliamentary committee finds against him. It is considering whether he remains a "fit and proper" person to oversee an organisation with a licence from the regulator.
It is also understood Murdoch and his father Rupert, chief operating officer of News Corporation, have both been called to give evidence to the Leveson Inquiry later this month.
In a letter to the committee sent in March, Murdoch seemed to indicate he was focusing more on his business roles in America.
"I gave up the role of executive chairman of News International in order to devote myself fully to my existing roles," he said. "Based at the company's headquarters in New York." He also used the letter to deny misleading the committee.
James Murdoch's departure comes despite receiving backing from BSkyB shareholders, who reappointed him at the company's annual general meeting last November.
Murdoch received the support of 75.4% of shareholders, with 17.4% opposed and 7.2% withheld, at last year's annual meeting.
Alan MacDougall, managing director of lobby group Pensions & Investment Research Consultants, which urged shareholders to oppose Mr Murdoch's re-election as chairman, said the "decision was inevitable" and called for him to leave the board entirely.
He said: "We are pleased that there has been a belated acknowledgement of the need for change, but dragging the process out was the wrong approach to take."
On Monday the Daily Telegraph reported that two independent directors of BSkyB were ready to stand down, in what would have been an additional blow to the board's backing of Murdoch.
Murdoch Resignation: Reaction
Labour leader Ed Miliband said on a visit to Toyota in Derbyshire, that standing down was the "right thing for him to do"
He said: "What now needs to happen is that the police investigation takes its course and gets to the bottom of exactly what happened."
John Whittingdale, chairman of the Commons Culture, Media and Sport committee, told Sky News: "I was not wholly surprised, rather I had expected actually that he would have stepped down at the time it was announced he was returning to New York and it is perhaps surprising that it has taken this long."
Labour MP Chris Bryant, a leading campaigner against phone hacking, said: "How are the mighty fallen.
"Two years ago the Murdochs were courted by all and sundry and now James Murdoch is running away with his tail between his legs, frightened of what the Culture Media and Sport Select Committee may say about his disastrous and incompetent running of News International."
As you know, my actions as a Director of BSkyB have been governed at all times by what is in the best interests of the Company, its customers and its shareholders. I have been privileged to serve first as Chief Executive and then as Chairman of this outstanding company and I am proud of what we have achieved over this period. We have invested to create choice for many millions of customers, grown our contribution to life in the UK and significantly increased returns for shareholders.Suggest a correction
I have now decided that this is the right time for me to step aside as Chairman and, with the support of the Board and shareholders, continue to serve the Company as a Non-Executive Director. As attention continues to be paid to past events at News International, I am determined that the interests of BSkyB should not be undermined by matters outside the scope of this Company.
I have been transparent in my evidence and have behaved ethically at all times. However, there continues to be extensive and voluminous commentary around these matters. I am aware that my role as Chairman could become a lightning rod for BSkyB and I believe that my resignation will help to ensure that there is no false conflation with events at a separate organisation.
BSkyB is a great success story and its positive contribution to British broadcasting, and to the country more broadly, should not be questioned. With a strong Board and outstanding management team, I am confident that the Company will achieve even more in the future. I look forward to making a continued contribution in my role as a Non-Executive Director.