Townsend (22) had only just made his run-on debut in the blue and gold but will be in the blue and white jersey next year.
Townsend said the decision to move north was not an easy one to make.
His partner Sarah Grey was looking for work in Auckland, while members of his family were moving to the City of Sails.
"It was a hard decision to come to. I've spoken to a few people about it and had given it a lot of thought," he said.
"It is pretty tough now to leave, with getting a bit of game time and I enjoy the environment down here in Otago, but I'm looking forward to getting up there and setting myself up."
He has signed with the Auckland Rugby Union, though not with the Blues franchise, and will leave Otago at the end of the season.
Townsend is originally from Christchurch and has been in Dunedin for five years, having spent the first three years collecting a commerce degree, majoring in marketing at the University of Otago.
He was in the New Zealand under-19 and New Zealand under-20 sides in 2007 and 2008 respectively, but injuries had forced him off the field in 2008-09.
He had to have a knee operation in 2008 and then broke a foot just before the representative season started last year.
He had managed to stay fit this season and has started the past couple of games for Otago.
Townsend, who is also studying to be a pilot, was the last of the national under-20 side to play first-class rugby, as he was hampered by injuries.
He was enjoying his taste of the higher class of rugby, although results could be better.
"You just have to be really focused on your key roles and have to concentrate on them for the whole of the game. You haven't got time to wait around like in club play."
Otago Rugby Football Union chief executive Richard Reid said the union would have liked to have kept Townsend but there were clear reasons why he wanted to move, which the union could understand.
"It is a pity but it is lifestyle reasons why he has moved on," Reid said.
Asked if Townsend had not shown much loyalty, after Otago had kept him on its books when he was injured, Reid said that was just the way of the world, and he was leaving with the union's blessing.
Townsend's departure means the two locks who have started for Otago in the past two games will not be playing for Otago next season.
Hayden Triggs has signed for the Chiefs and will leave at the end of the season.
He has yet to sign a provincial contract for next year.
