Haley, 46, was appointed as the US ambassador to the world body in January last year.
President Trump confirmed that Haley will step down as UN ambassador. Haley said she had no plans to run for president in 2020.
Meeting Haley in the Oval Office, Trump said that she had done a "fantastic job" and would leave at the end of the year.
"She told me probably six months ago," Trump told reporters, adding that she told him that "I want to take a little time off."
"We're all happy for you in one way, but we hate to lose (you). ... Hopefully, you'll be coming back at some point. Maybe a different capacity. You can have your pick," Trump said.
"Nikki Haley, ambassador to the United Nations, has been very special to me. She has done an incredible job. She is a fantastic person, very importantly, but she also is somebody who gets it. She has been at the United Nations from the beginning with us, right from the beginning, and worked with us on the campaign," the US president said as he bid Haley goodbye.
Haley who is the daughter of an Indian immigrant and an ex-Governor of South Carolina said the United States under Trump's presidency is now respected around the world.
"Now the United States is respected. Countries may not like what we do, but they respect what we do. They know that if we say we're going to do something, we follow it through," she said.
Haley's departure is the latest in a series of high profile exits from Trump's cabinet including former secretary of state Rex Tillerson who was fired in March. However, the reason for Haley's sudden departure is still unclear.