The Israel Defense Forces (IDF) said Major General Aharon Haliva would retire once his successor was selected.
He acknowledged in a letter that his intelligence directorate “did not live up to the task we were entrusted with”.
He is the first senior figure to step down over the attack, which were the deadliest in Israel’s history.
Israeli military and intelligence officials missed or ignored multiple warnings before hundreds of Hamas gunmen breached the Gaza border fence that day and attacked nearby Israeli communities, military bases and a music festival.
About 1,200 Israelis and foreigners – mostly civilians – were killed and 253 others were taken back to Gaza as hostages, according to Israeli tallies.
Israel responded by launching its most intense ever war in Gaza with the aims of destroying Hamas and freeing the hostages.
More than 34,000 Palestinians in Gaza – most of them children and women – have been killed in the conflict, the territory’s Hamas-run health ministry says.
A statement put out by the IDF on Monday said Maj Gen Haliva had “requested to end his position, following his leadership responsibility as the head of the intelligence directorate for the events of 7 October”.
In his resignation letter, the general wrote: “I carry that black day with me ever since, day after day, night after night. I will carry the horrible pain of the war with me forever.”
He also called for the establishment of a state commission of inquiry “that can investigate and find out in a thorough, in-depth, comprehensive and precise manner all the factors and circumstances that led to the difficult events”.
“Everything I did during my service in the IDF was for the sake of the people of Israel and the State of Israel,” he added.
Maj Gen Haliva’s resignation had been anticipated, given that he had stated 10 days after the attack that he bore full responsibility for the intelligence failures of his directorate.
However, the announcement sets the stage for what is expected to be more fallout from Israel’s top security officials.
The IDF’s chief of staff, Lt Gen Herzi Halevi, and the director of the Shin Bet security service, Ronen Bar, have both taken responsibility for failing to protect Israelis but decided to stay on for the war in Gaza.
Prime Minister Benjamin Netanyahu has said that “everyone will need to provide answers, myself included”. However, he so far refused to accept any direct responsibility.
Opposition leader Yair Lapid said on X (formerly Twitter) that Maj Gen Haliva’s decision to resign was “justified and honourable”, but added that Mr Netanyahu “should have done the same”.
