Hay, who took over the team in 2019, will finish his tenure when his contract ends on October 31, governing body New Zealand Football (NZF) said today.
“There is no doubt he has played a key role in the development of the team during a challenging period for international football," NZF boss Andrew Pragnell said in a statement.
"While Danny was offered the opportunity to re-apply for the position, we respect his decision not to put himself forward and wish him the best of luck with whatever he chooses to do next."
New Zealand's qualifying campaign ended at the last hurdle, with a 1-0 defeat to Costa Rica in a playoff in Doha in June.
Hay lamented a lack of competitive matches scheduled for his team, which played five games against small Pacific nations to win the Oceania grouping and earn their playoff chance.
NZF said Hay's decision followed an "independent campaign de-brief" on the All Whites' World Cup qualifying cycle which involved interviews with more than 40 people.
The debrief found the team were as well prepared as possible but also identified "a lack of alignment" between the All Whites staff and New Zealand Football's high performance department," Pragnell said.
It also recommended the communication style of the coaching group, led by the head coach, needed to "evolve to meet the needs of a wide range of players from a cross-section of backgrounds."
Hay did not comment in the NZF statement.
New Zealand striker Chris Wood has said it would be a huge mistake for NZF to let Hay go and that the team wanted him to stay on in the job.
"I think everybody would be absolutely silly if you let this man go," Wood, who also plays for Newcastle United, said after the All Whites' 2-0 defeat by Australia last month.
"You can see how much has changed in 12 months. Can you imagine what he can do in four years?
"Without a shadow of a doubt I want him here. The team wants him here. We play better football under him. And if we let him go, I think it's absolutely detrimental to New Zealand football."
Oceania have been guaranteed one slot in the expanded 48-team World Cup in North America in 2026 and, given New Zealand’s dominance of the region, they will be highly favoured to reach the finals in four years.
