The news broke via News Corp ahead of the third day of the fourth Test at Trent Bridge.
Reports are circulating that the 34-year-old was told there would be no place for him after Australia’s disastrous Ashes tour.
Australia are headed for one of its worst defeats ever after crumbling to a first innings total of 60 and will go down 3-1 in the five match series.
Clarke confirmed he will play the final Test of the series before stepping down.
Speaking to Shane Warne after England stormed to victory by an innings and 78 runs, Clarke said it was time for him to go.
"I certainly don't want to jump ship and leave the boys now, so I'll play the last Test at the Oval and give it one last crack, but the time is right now," he said.
"You never want to walk away from the game but I think my performances in this series and over the last 12-months have not been acceptable to me. I pride myself on leading from the front.
"I tried my best, we got outplayed, we got beaten and now it's time for the next generation of players, the next captain to have his opportunity to build his team ready for the next Ashes series.
"I made the decision last night after I got home from the day's play and I feelmy performances during this series haven't been as good as I wanted them to be.
"It's never easy. I started playing this great game at six years of age and I'm 34 now. I wish I could play for another 30-years.
"That's the way it goes. It's the right time."
The news comes just days after he vowed to continue playing despite the poor results.
Clarke debuted for Australia in 2004 against India and has played 113 Tests for Australia with an average of 49.73.
He played 245 ODIs and 34 T20s, ending his limited over career with the World Cup final earlier this year.
BREAKING: Michael Clarke set to retire after the Ashes. Exclusive via @BenHorne8 on @telegraph_sport
— Peter Fitzgerald (@PeterFitzy) August 8, 2015