Larkham, who won the 1999 Rugby World Cup and played more than 100 times for the national side, will take up a new role as National High Performance Coach Advisor.
"Larkham will move into the new role with immediate effect after a decision was made by head coach Michael Cheika that Larkham should no longer continue in the role of assistant coach of the Wallabies," Rugby Australia said in a statement.
Larkham, who will now concentrate on coach mentoring, coaching and skills development across Rugby Australia's national programmes, said he was disappointed to be leaving the Wallabies job, which he had held since 2015.
"Ultimately Michael is responsible for the performance of the team," Larkham said.
"We have differences in attacking strategy and overall game philosophy. We couldn't agree on these key points and it is in the best interest of the team that they receive clear and consistent messages from their coaches.
"I am obviously disappointed with this outcome as I had chosen to pursue the experience of taking the Wallabies through to the World Cup, however I am pleased to be able to continue coaching and contributing to Australian Rugby in this new role."
(Reporting by Greg Stutchbury; Editing by Amlan Chakraborty)
