McRae, who was given the job at the end of last season, said that he wanted to both take on a role as a hands-on coach once again and continue his career in the rugby league media.
The Sky Sports pundit was the only man to spend the first nine years of Super League coaching, first with Saints and then with hull, before moving down under to take the reigns at Souths.
McRae spent two years at the helm with the Rabbitohs but was last year moved to his new administrative role to allow Jason Taylor to step in as the club’s new coach.
"I want to remain involved in rugby league in a coaching or media position and at this stage of my career I didn't want to pursue an administrative role," said McRae.
"I'm not sure what I'm going to do at this stage apart from seeing what is available and what my options are.
"I wanted to do the right thing by the club and I leave the organisation on good terms. I wish the South Sydney Football Club all the best – with the way the Club is heading I’m sure success is just around the corner."
South Sydney chief executive Shane Richardson said: "Shaun's decision is disappointing but understandable. He has a desire to coach and we wish him the best in the future."