Ma said that after he steps down from his current roles he will continue to mentor management as part of the "Alibaba Partnership", a 36-member group of core company managers.
Mr Ma, who turned 54 on Monday, was an English teacher before starting Alibaba in 1999 and building it into a multi-billion-dollar internet colossus, becoming one of the world's richest men and a revered figure in his homeland.
Ma, who also controls Alibaba payment affiliate Ant Financial, is stepping back amid more challenging times for Chinese tech companies as sales growth in China's eastern mega-cities shows signs of slowing.
"I will work closely with Daniel to ensure a smooth and successful transition", Ma said in a letter released by the company. Zhang, 46, has been in the job since 2015 after serving as chief operating officer and is known as a key architect of Alibaba's "Singles Day", the November 11 event that has become the world's largest online shopping event.
The statement did not specify exactly what Ma planned to do after stepping down but it said he wants to "return to education".
He said he wanted to dedicate more time to philanthropy through the Jack Ma Foundation.
While he plans to continue his role as the founding partner in the Alibaba Partnership, he now wants to return to what he "loves to do" - education.
In January previous year, Mr Ma said he had had a "great meeting" in NY with then US President-elect, Donald Trump. It was then backed by $60,000 from 18 co-founders.
He said Mr Zhang, who has been with Alibaba for eleven years, had demonstrated "superb talent" since taking over as chief executive.
Last year, he made his acting debut with his first kung fu short film Gong Shou Dao, in which he sparred with martial arts master Jet Li.