Couple will split time between UK and North America, they say, amid speculation on move to Canada
The couple want to become financially independent, they announced in a statement published to the Sussex Royal Instagram account.
It comes amid speculation the couple want to move to Canada, and just a day after they thanked Canadian embassy staff in person for the hospitality they enjoyed during a six-week Christmas holiday in Vancouver with Doria Ragland, Meghan's mother.
In the statement, Prince Harry and Meghan Markle said: "After many months of reflection and internal discussions, we have chosen to make a transition this year in starting to carve out a progressive new role within this institution.
"We intend to step back as 'senior' members of the Royal Family and work to become financially independent, while continuing to fully support Her Majesty The Queen.
"It is with your encouragement, particularly over the last few years, that we feel prepared to make this adjustment."
They added: "We now plan to balance our time between the United Kingdom and North America, continuing to honour our duty to the Queen, the Commonwealth, and our patronages.
"This geographic balance will enable us to raise our son with an appreciation for the royal tradition into which he was born, while also providing our family with the space to focus on the next chapter, including the launch of our new charitable entity.
"We look forward to sharing the full details of this exciting next step in due course, as we continue to collaborate with Her Majesty The Queen, the Prince of Wales, the Duke of Cambridge and all relevant parties. Until then, please accept our deepest thanks for your continued support."
The bombshell statement provoked a swift response from Buckingham Palace, publicly warning the duke and duchess that their decision had raised "complicated issues that will take time to work through". Discussions about their future role were "at an early stage", a spokesperson said.
The Independent understands that the mood at the palace is one of disappointment, and that other members of the royal family were not consulted on the content of the statement before it was published.
The Sussexes have publicly struggled with media coverage of their relationship, the duchess launching a privacy action against the Mail on Sunday while Harry pursues the owners of The Sun and The Daily Mirror over alleged phone-hacking.
In an interview with ITV journalist Tom Bradby in October 2019, during the Sussexes' 10-day tour of southern Africa, Meghan said that joining the royal ranks had been a "struggle".
She said that prior to her engagement friends had warned her British tabloids would "destroy your life", but she ignored them. "I had no idea which probably sounds difficult to understand here," she said.
She continued: "It's not just enough to survive something, you've got to thrive. I really tried to adopt this British sensibility of a stiff upper lip, but I think that what that does internally is probably really damaging.
"The biggest thing that I know, I never thought this would be easy, but I thought it would be fair. And that's the part that's really hard to reconcile."
In response to being asked if she was okay, the duchess said: "And, also thank you for asking, because not many people have asked if I'm OK. But it's a very real thing to be going through behind the scenes."
Prince Harry said in the same interview: "I will always protect my family. And now I have a family to protect."
In a separate update on their new website on Wednesday night, the duke and duchess said they were overhauling their relationship with the press and launched a stinging attack on the business of royal reporting.
The couple are pulling out of the royal rota system, which gives newspapers and broadcasters access to pooled resources with which to report their activities, they said, and will favour "grassroots" media organisations and "young, up-and-coming journalists".
Updates are likely to be seen first on social media rather than news websites, they warned, adding that the public's view of royal correspondents as credible was a "misconception".
Speaking to The Independent, author and royal commentator Claudia Joseph said: "In some ways it's surprising but in other ways I think it was always on the cards. Meghan lived in Toronto before her marriage and they have just had a wonderful break in the country.
"I think social media is to blame. If you read the comments about Meghan on Twitter, you can see why she would want to escape."
Royal commentator Richard Fitzwilliams said he believed the Sussexes' move "will undoubtedly be seen by some as a sign the monarchy couldn't adapt to the 21st century".
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