John, who was also the national director of Australia's sevens programme, will return to his native Wales to take on a new coaching development role with the Welsh Rugby Union (WRU).
"I'm thrilled to have been chosen to take on this exciting new role," John said in a WRU media release.
"Having spent 10 years away from Wales, I feel I have a huge amount to give back to Welsh rugby, developing the next generation of elite coaches for Wales."
John's move blindsided the ARU, who earlier said the 53-year-old had quit for "personal reasons".
The national women's sevens coach Tim Walsh would take over as caretaker of the men's team pending a permanent replacement, the ARU added in a statement.
John spent four years as coach of the Canada men's sevens team before taking the role in Australia last year.
He departs less than three months before Australia head into their Oceania qualifying tournament on Nov. 14-15 where they face stiff competition for the region's sole Olympic berth from Pacific rugby power Samoa.
Australia's men finished fifth in the sevens world series, missing out on automatic qualification for the top four teams.
Fiji, South Africa, New Zealand and Britain qualified through the world series, with Argentina, United States and France booking their Rio tickets through regional qualifiers.
Brazil, as hosts, are also among the eight sides confirmed for the 12-team tournament.
Australia's men won a bronze at last year's Commonwealth Games in Glasgow under John and are expected to push for a medal at Rio with a number of their top Wallabies players from the 15-man game set to boost their squad.
(Reporting by Ian Ransom; Editing by Greg Stutchbury/Amlan Chakraborty)
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