Shares of BPsurged more than 4% after the oil giant said Chief Executive John Browne had decided to step down at the end of July, much earlier than planned.
Browne, will be succeeded as CEO by Tony Hayward, currently BP's head of exploration and production.
Browne said last year that he would retire at the end of 2008. Since then, BP, one of the world's largest oil companies, has suffered a series of operational and governance problems that have led to strong criticism from investors and a dent in its reputation.
Chairman Peter Sutherland said Browne decided it would be in BP's interest to name a successor now to ensure an orderly transition.
"Having made that decision, which the board fully supports, we came to the conclusion that a six month handover would be more appropriate than 18 months," Sutherland said in statement.
Browne was appointed CEO in June, 1995.
"I see it as positive news," Jason Kenney, oil analyst at ING in Edinburgh, said. "They had a difficult choice because there were a number of positive people who could have taken over the role."
"The fact that Tony Hayward has got it will enable BP to move forward and put the succession debate behind them and get on with the job," said Kenney, who has a 'Hold' rating on the stock.
Hayward, who joined BP in 1982, was appointed to the main board in 2003, becoming CEO of BP's exploration and production business.