The 63-year-old presenter - who is paid a rumoured £800,000 a year - will step down from the nightly programme next month after 25 years as host.
He said: "After 25 years, I should rather like to go to bed at much the same time as most people.
"This was a decision I reached - and informed the BBC of - last July. I shall work out the remainder of my contract and will not seek another.
"It's been fun. I have had the pleasure of working with lots of clever, creative and amusing people. I think I've been lucky and wish the programme well."
The BBC said Paxman agreed to stay to help its new editor "following a difficult period" which saw the show widely criticised after it pulled a planned item linking Jimmy Savile with child abuse.
A spokesperson added: "The BBC is immensely grateful for this gesture, which is entirely in keeping with his outstanding contribution to both 'Newsnight' and, over four decades, the BBC itself."
BBC director-general Tony Hall praised the legendary interviewer as a "rare and dazzling talent".
He said: "His is a rare and dazzling talent. He has a unique ability to create moments of real discomfort for politicians and memorable delight for audiences.
"For that cussed brilliance and much more besides, the BBC and our audiences will always be in his debt."
Paxman will continue to present 'University Challenge'.