Gray, 65, was appointed chairman of the UK Gas and Electricity Markets Authority (GEMA) – Ofgem’s ruling body – in October 2013.
He had previously been an executive director of Ofgem from 2003-2007 – in charge of the networks division.
Commenting on the announcement, Gray said: “My term has coincided with a period of rapid change, not only in the retail energy market, but also in how we generate, transport and consume energy. It has been a privilege to chair Ofgem during such a challenging and exciting time.
“Amidst these changes, Ofgem will continue to protect all consumers as we work towards delivering a smarter, fairer and more competitive energy system for everyone. I will keep working towards this goal for the remainder of my term.”
Dermot Nolan, chief executive of Ofgem, said: “I would like to thank David on behalf of Ofgem and the rest of GEMA for the huge contribution he has made since becoming chairman in October 2013.
“David deserves great credit for the progress we have made as an organisation over the last five years. He has helped steer Ofgem through five years where the pace of change in energy has never been faster and energy has seldom been far from the news headlines.
“I know that David will continue to work hard with me and the board over the coming months to make sure that Ofgem is fully ready for the challenges ahead.”
The chair of Ofgem is appointed by the Secretary of State for Business Energy and Industrial Strategy. The department will oversee the recruitment process for a new chair which will begin shortly to ensure a smooth transition following the departure.
Gray spoke at Utility Week Congress in October, where he warned energy networks they must be “mindful of the way they are perceived” after the publication of a report by Citizens Advice which claimed the companies are making £7.5 billion in unjustified profits.