Bielsa stepped down at a news conference despite his overwhelming popularity in Chile and attempts by the new Chilean soccer association president Sergio Jadue to persuade him to stay.
The 55-year-old Bielsa last year led Chile to a second-round appearance and its most successful World Cup in almost 50 years, but said he would resign if Jorge Segovia was elected president of the Chilean FA.
Segovia's election was anulled and Jadue took over in his place last month, but Bielsa carried through with his threat to quit.
His voice cracking as he spoke, Bielsa said he was leaving because he did not see things the same way as Jadue. He accused Jadue of feeding false information to reporters to "fool the news media to get the football public to turn against me."
"Another reason I am resigning is because it was impossible to know who was exercising authority," Bielsa added. "It was never clear if the power was with the president of the Chilean FA, the big Chilean clubs or all 32 clubs."
Earlier in the week Jadue told reporters that he thought Bielsa would be staying.