Fiat Chrysler said in a statement that due to his deteriorating health. He had been due to step down from the combined group next April but his sudden health crisis forced FCA to accelerate the shift.
The premium marque stands at the apex of a five-year FCA plan which Marchionne unveiled in June to increasingly focus develop on hybrid and electric vehicles.
"The board will therefore propose to the next shareholder meeting, to be called in the coming days, that he be elected to the board and serve as an executive director of the company".
Marchionne is an automotive industry legend, and is widely credited with rescuing Chrysler after the financial crisis left USA auto companies limping along. Manley on Saturday was named Fiat Chrysler CEO to replace Sergio Marchionne.
But Marchionne told analysts during a big presentation last month that his true legacy at Fiat Chrysler Automotive would be the culture of a corporation where "mediocrity is never, ever worth the trip". He joined the Fiat S.p.A. board as an independent director in 2003 and became its CEO in 2004. The team are rumoured to replace young star Charles Leclerc, believed to be leaving the team at the end of the year for Ferrari, with a number of reputable names, including a return for Kimi Räikkönen and salvation for the McLaren F1 Team's Stoffel Vandoorne.
Manley, a European like Marchionne, has 18 years of experience at the company and led Jeep to consistently outperform itself in year-over-year sales.
Fiat Chrysler, Ferrari boss steps down
The news was confirmed on Saturday evening, with Ferrari naming John Elkann as the company's new chairman.
Meanwhile, Louis Carey Camilleri, a former chairman of tobacco company Philip Morris International, owner of Ferrari sponsor Marlboro, will take on the role of CEO at Ferrari.
Another position vacated by Marchionne was as Chairman of truck and tractor maker CNH Industrials.
Elkann issued a statement saying he was "profoundly saddened" by news of Marchionne's health problems.
The two men have worked together for 14 years and while they did not always agree, Elkann watched Marchionne create the company now known as FCA from the partnership of an ailing Fiat and a bankrupt Chrysler in 2008 that needed a business partner as a condition of exiting bankruptcy protection.
"Marchionne ran FCA in a command and control style, with constant firefighting measures".
The passenger-car brands of Fiat and Chrysler have been less profitable. "We expect continuity." But he also expressed concern that FCA's success has been linked to Marchionne's ability to shift strategy to meet targets.