The 68-year-old hands over to assistant Danny Blind with the Dutch third in their Euro 2016 qualifying group, facing the possibility of a playoff tie to win a spot at next year's championship in France.
The much-travelled Hiddink has delivered some mediocre results and been heavily criticised since taking over from Manchester United-bound Louis van Gaal in August.
It was previously planned that Blind would take over as the number one following Euro 2016.
"I think it's a real pity things worked out like this," Hiddink said in a statement.
"It was an honour to be the national coach again and I wish my successor and all the staff every success on the road to Euro 2016."
The Dutch finished third at the 2014 World Cup in Brazil and since then they have won four games in 10 matches, drawing once and losing five times.
They are five points behind leaders Iceland and three adrift of Czech Republic in Group A although they still have to host both in Euro 2016 qualifying.
Hiddink’s team lost to Czech Republic and Iceland in September and October last year and also dropped points at home to Turkey in March.
He was questioned by reporters in recent months over an apparent failure to forge the special bonds with his players that he had in the past.
Hiddink, who has also coached a host of top clubs including Real Madrid and Chelsea, responded by saying the negative reaction was disproportional.
The Dutch reached the semi-finals of the 1998 World Cup in France during his first spell in charge.
(Editing by Tony Jimenez)
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