"This decision was not taken lightly, and reflects US concerns with mounting arrears at UNESCO, the need for fundamental reform in the organization, and continuing anti-Israel bias at UNESCO," the State Department said.
"The United States would seek to "remain engaged ...as a non-member observer state in order to contribute US views, perspectives and expertise," the statement added.
State Department spokeswoman Heather Nauert said Washington would establish an "observer mission" to replace its representation at the Paris-based agency.
The UNESCO chief expressed 'profound regret’ over US' withdrawal.
"I deeply regret the decision of the United States of America to withdraw from UNESCO," Irina Bokova, Director-General of UNESCO said.
"In 2011, when payment of membership contributions was suspended at the 36th session of the UNESCO General Conference, I said I was convinced UNESCO had never mattered as much for the United States, or the United States for UNESCO," UNESCO Director-General said in a statement.
"Despite the withholding of funding, since 2011, we have deepened the partnership between the United States and UNESCO, which has never been so meaningful," Bokova said.
Paris-based UNESCO, which began work in 1946, is known for designating World Heritage sites such as the ancient city of Palmyra in Syria and the Grand Canyon National Park.
The United States had cancelled its substantial budget contribution to 58-member UNESCO in 2011 in protest at a decision to grant the Palestinians full membership.