"Obviously, it wasn't easy news to hear,"
Obama said, as he announced Daley wanted to leave for their mutual hometown of Chicago, and unveiled
that Budget Director Jacob Lew would take over the crucial position. 
US President Barack Obama (C) announces the change of his chief of staff. Bill Daley (R) will be replaced by Jacob Lew (AFP Photo/Jewel Samad)
Daley's position had been a point of conjecture for months, after the Wall Street Journal revealed in November that he had ceded some of his duties.
But Daley, part of a storied Chicago political dynasty, had been expected to stay on in the White House until after November's election, in which Obama is seeking a second term in a challenging economic environment.
The former Bill Clinton-era commerce secretary was appointed just a year ago as the administration sought to bounce back from a Republican triumph in mid-term polls in 2010 and to put forward a more friendly face to business.
His contacts in the financial sector and propensity for the political centre however caused distrust among some liberal members of Obama's base.
But Daley shouldered much of the blame when the White House failed to clinch a deal on cutting the deficit and taxes with Republicans last year, and the Obama administration has since returned to a more confrontational posture.
Obama said Daley told him last week that he wanted to return to Chicago to spend more time with his family, especially his grandchildren.
"No one in my administration has had to make more important decisions more quickly than Bill and that's why I think this decision was difficult for me," he said, adding he did ask Daley to reconsider.
Obama said Daley, expected to leave by the end of the month, played important roles in the decision-making which led to the operation to kill Osama bin Laden in Pakistan last year, among other crucial issues.
In a letter to Obama, Daley said he was "honoured to be a small part of your administration. It is time for me to go back to the city I love."
Obama made his announcement less than two hours after his press spokesman Jay Carney insisted that the working environment was "harmonious" at the White House, as he argued that a new book detailing tension between First Lady Michelle Obama and key presidential staff members was "over-hyped."
Staff shake-ups are a staple of life at the White House, though the Obama team has sought to downplay any spats, in keeping with the president's insistence on a "no drama" administration.
But the fact that Daley did not last more than a year in his post will raise eyebrows and be taken as another sign of the difficulty outsiders experience in trying to penetrate Obama's inner circle.
The White House is now squarely in reelection mode and there is limited need for liaison with Congress on key legislative priorities that is traditionally part of the chief of staff's portfolio.
Obama's top political advisor David Plouffe, who masterminded his 2008 election win, is now seen as the dominant staff figure in the West Wing, and another centre of power resides at the president's reelection HQ in Chicago.
Lew is on his second tour as director of the Office of Management and Budget, having won his spurs in the Clinton administration on balancing the budget.
He also served Obama as a deputy secretary of state charged with budget and financial issues.
The post of chief of staff is vital in any White House, as its occupant controls access to the president, coordinates the implementation of policy and handles breaking crises.
The chief of staff also often serves as an enforcer for the president, deploying executive power and managing relations with a sometimes hostile Congress.
Daley left Washington for the private sector after running the presidential candidacy of former vice president Al Gore in 2000, which only ended after the US Supreme Court handed the disputed election to George W. Bush.
He also worked for finance giants JP Morgan & Chase.
Daley's father, like his brother named Richard, was a dominant Chicago figure, serving as the city's mayor for more than two decades.
- AFP/wk
