Icahn says he no longer felt it necessary for the online media company to have an activist as a director.
His resignation follows last year’s spat with Yahoo! founder and then chief executive Jerry Yang over the internet company’s proposed sale to Microsoft.
Icahn called a proxy contest to oust the board of Yahoo! after Yang rejected a $47bn takeover bid from Microsoft.
The two then struck an agreement whereby Icahn and two hand-picked nominees had seats on the Yahoo! board.
Yahoo! has since appointed a new chief executive, Carol Bartz and struck a deal with Microsoft that will see it perform advertising sales for the Microsoft Bing search engine, which would in turn power the Yahoo! site.
Yahoo! recently launched its biggest global marketing campaign in years to promote its new positioning as providing a more personalised user experience, underpinned by the new strapline “It’s Y!ou”.
The firm is trying to claw back some of the market share it has lost to Google. Recent data from internet research firm Hitwise showed Yahoo! saw a fall in market share from 16.96% to 16.38% in September while Google’s share rose from 70.24% to 71.08% over the same period.