The Republican and former Illinois congressman brought a bipartisan element to the Democratic president's team, and his legislative skills helped Obama win approval of a new highway funding bill last year that had been stalled due to political bickering.
"As Secretary of Transportation, he has fought to create jobs and grow our economy by rebuilding our roads, bridges and transit systems," Obama said in a statement.
"Years ago, we were drawn together by a shared belief that those of us in public service owe an allegiance not to party or faction, but to the people we were elected to represent. And Ray has never wavered in that belief," Obama added.
Obama has nominated another Republican, former Senator Chuck Hagel, to be defense secretary.
LaHood maintained strong ties to Republican leaders despite serving in a Democratic administration and had a reputation as a straight shooter and legislative tactician.
Still, the Republican party has swung hard to the right in contrast to LaHood's more moderate stance.
In a statement to Transportation Department employees, he said he would continue to serve as secretary until the Senate has confirmed his successor.
His departure offers Obama another opportunity to bring fresh blood and ideas into the administration as it begins its final four years. After nominating Hagel and other white men to four prominent administration posts, Obama is under pressure to bring more women and minorities into his cabinet.
Secretary of Labor Hilda Solis has already left, Environmental Protection Agency chief Lisa Jackson has announced plans to go and Secretary of State Hillary Clinton , the highest- profile woman in the Cabinet, is leaving imminently. The Senate is expected to confirm Senator John Kerry to succeed Clinton later on Tuesday.
The list of LaHood's possible successors includes former Washington Governor Chris Gregoire, former Michigan Governor Jennifer Granholm , Los Angeles Mayor Antonio Villaraigosa, former Federal Aviation Administration head Jane Garvey and National Transportation Safety Board Chairman Debbie Hersman.
Two major challenges facing the next secretary are modernizing the U.S. air traffic control system and finding a way to pay for the United States' huge infrastructure needs, said Joshua Schank , president of the Eno Center for Transportation, a non-partisan think tank.
A more immediate issue that could confront his successor are problems with Boeing Co 's 787 Dreamliner that prompted the government to ground the recently launched plane earlier this month.
LaHood said last week the administration was working with the largest U.S. exporter to return the plane to service "as quickly as possible."
"But we must be confident that the problems are solved before we can move forward," he said.
'Stop Driving'
LaHood also spent months in the national spotlight in 2009 and 2010 when Toyota recalled millions of vehicles for unintended acceleration problems.
He sent the company's stock tumbling when he told a congressional panel that his advice for Toyota owners was to "stop driving" the recalled cars.
He backpedaled later that day, telling reporters his comment was "obviously a misstatement" and he merely meant to say owners should take their car to the dealer to have it checked out.
Ed Hamberger , president of the Association of American Railroads , said LaHood brought "passion, energy and a deep commitment to safety" to his work at the department.
In his statement, LaHood identified safety as an area where the department had made progress in the last four years, citing a new initiative to reduce distracted driving and "a rule to combat pilot fatigue that was years in the making."
House of Representatives Democratic Whip Steny Hoyer said LaHood's campaign to stop peop
