BHP's energy coal head, Jimmy Wilson, 50, will take over the reins of the iron ore business, BHP's biggest revenue earner and most profitable arm over the past several years.
Ashby, head of the world's third-largest iron ore producer, rocked global markets last week when he warned iron ore demand growth was flattening in China, the world's top iron ore buyer and BHP's biggest customer.
Iron ore prices and mining stocks worldwide fell on his comments.
BHP's statement did not give a reason for the changing of the guard, which comes in the middle one of the company's biggest projects, the $11 billion expansion of its iron ore operations in Western Australia nearly doubling capacity to 240 million tonnes a year.
A source familiar with his decision said Ashby, 55, did not want to stay on until 2016, when the company is due to finish construction of the outer harbor at Port Hedland, crucial to its further iron ore expansion ambitions.
Investors said the timing made sense.
In terms of management renewal at this time -- maybe it is a good time when you have significant large projects due to be delivered over the next five years, said Ben Lyons, who helps manage A$500 million at ATI Asset Management, a BHP shareholder.
Ashby and Wilson were unavailable for interviews on Friday.
In a rare statement on a management shift, BHP Chief Executive Marius Kloppers hailed Ashby's reign over the iron ore business.
This is a highly efficient operation that is on track to deliver substantial, transformational growth over the next decade, which is testament largely to his leadership, Kloppers said in a statement emailed to Reuters.
The iron ore division more than doubled its earnings last year to $13.3 billion on higher production and prices, making up 42 percent of the group's earnings.
Ashby played a key role in slowing the emergence of new rivals in iron ore.
He was instrumental in blocking attempts by Fortescue Metals Group
Under Ashby, the company last year bought out the contractor that ran its iron ore mines for $727 million to take full control over its operations, following five deaths at the mines in the 2009 financial year and one at Port Hedland.
The move was designed to improve safety, cut costs and give BHP 2,500 experienced workers amid a skills shortage in the industry.
The head of BHP's ferrous and coal business, Marcus Randolph, said Wilson brings strong operating and project experience to the iron ore division.
He will build on Ian's successful leadership to continue to grow the Iron Ore business, while ensuring it continues to operate to world class standards, Randolph said in a statement.
BHP's Sydney-traded shares rose 1.8 percent to A$34.85 on Friday, outpacing a 0.4 percent gain in the broader market <.AXJO>.
(Reporting by Sonali Paul; Editing by Edmund Klamann)