Trump told reporters in the Oval Office that Nikki Haley would be leaving the post at the end of the year as he accepted her resignation as UN Ambassador after doing “an incredible job”.
Joined by the former South Carolina governor in the Oval Office, he invited her to come back in a different role. “You can have your pick,” he said.
Mrs Haley was confirmed as US envoy to the UN in January 2017.
Mr Trump said Mrs Haley had told him six months ago she wanted to take some time off.
She told reporters that despite speculation, she was not planning to run for president in 2020 and would be campaigning for Mr Trump, who has already announced his re-election bid.
“Thank you, Mr President. It has been an honour of a lifetime,” she said alongside Mr Trump.
The president said Mrs Haley “has been very special to me, she has done an incredible job she is a fantastic person very importantly but she is also somebody that gets it”.
He said of her role at the UN: “She got to know the players. She got to know China, India, everybody.
“And they like her. And maybe more importantly, they respect her.”
Her exit comes after she served as the temporary president of the UN Security Council for one month.
Mrs Haley’s Twitter bio has already removed all references to her role as UN ambassador.
In April, she clashed with the White House when a Trump aide suggested she had prematurely announced a new round of sanctions against Russia
White House economic adviser Larry Kudlow told reporters Mrs Haley had got “ahead of the curve” by previewing the policy, putting her remarks down to “momentary confusion”.
She fired back hours later telling Fox News: “With all due respect, I don’t get confused.”
The daughter of immigrants from India, Mrs Haley was a frequent and early critic of Mr Trump during his election campaign whilst she served as the Republican governor of South Carolina.
In December 2017, she said that the women who had accused Mr Trump of sexual assault “should be heard”.
At one point she suggested that Mr Trump’s rhetoric could trigger a world war.
BBC New York correspondent Nick Bryant said she had formed a partnership with UN General Secretary Antonio Guterres to protect the UN against Mr Trump’s anti-globalist agenda.
Her famous with-us-or-against-us approach grated many diplomats in the chamber but she was widely considered to be an internationalist ally, our correspondent adds. (BBC)