Minouche Shafik, who is part of the nine-strong MPC which sets UK interest rates, joined the bank as deputy governor for markets and banking on 1 August 2014 after previously working at the International Monetary Fund (IMF) and the World Bank.
The bank said the treasury will now begin the process of recruiting her successor.
Shafik, who will join the LSE in September 2017 after a "post-employment cooling off period", said the bank had stood up to every test by maintaining stability with a modern approach.
"The bank is a vital institution full of talented people committed to serving the public good - I will miss them a great deal.
"While it was impossible to resist the opportunity to lead a world class university like the LSE, I leave the bank with a deep appreciation for its work and much admiration of its staff."
As well as holding a position on the MPC, Shafik was also a member of the Financial Policy Committee, the board of the Prudential Regulation Authority and the Bank's Court of Directors.
She was due to serve at the Bank until 31 July 2019.
Her departure comes after Michael Saunders, an economist at Citigroup, joined the MPC on a three-year term in August.
He replaced Dr Martin Weale, whose second term of office came to an end on 8 August.
Speaking about Shafik, bank governor Mark Carney said she had left an important legacy.
"We will say farewell to Minouche with gratitude and regret.
"She helped drive vital reforms on the domestic and international stages, perhaps most prominently in the successful completion of the Fair and Effective Markets Review which she co-chaired.
"She has overseen a transformation in how we manage our balance sheet and is modernising our high-value payments system."
The MPC will announce its latest decision on interest rates on Thursday after last month's cut to a new all-time low of 0.25% from 0.5%.