Byrd, 90, has become increasingly frail in recent years, and the move didn't come as a surprise.
The West Virginia Democrat is a Senate icon and a legend in his own state, where he's single-handedly responsible for directing huge sums of federal largess for roads, universities, and economic development projects. It was a perk of his powerful perch as chairman or top minority member of the panel for the past two decades.
Before that, he was the Senate's Democratic leader for 12 years.
Byrd said Friday he made the decision voluntarily, deciding it's time for new leadership on the committee, which is among the most important in Congress for its control over more than $1 trillion in federal agencies' budgets.
"A new day has dawned in Washington, and that is a good thing. For my part, I believe that it is time for a new day at the top of the Senate Appropriations Committee," Byrd said in a statement. He said he would remain as chairman of the subcommittee that writes the budget for the Department of Homeland Security.
Byrd will be replaced by Hawaii Democrat Daniel Inouye, 84, who's served in the Senate since 1963, and also has a reputation for shipping federal dollars back to his state. Inouye said he was "humbled" at the prospect of taking over the panel in January when the new Congress convenes.
While the decision was made by Byrd, it came after a monthslong whispering campaign by some of his Senate colleagues and their staff aides in hopes of easing him out. Byrd withstood the pressure earlier this year, but it resumed in recent days.
"I want to stress that this is a decision I made only after much personal soul-searching, and after being sure of the substantial Democratic pickup of seats in the Senate," Byrd said. "I am now confident that stepping aside as chairman will not adversely impact my home state of West Virginia."
Byrd remains the Senate's president pro tempore, a largely symbolic post reserved for the longest-serving member of the majority party. It puts him third in the line of presidential succession after House Speaker Nancy Pelosi, D-Calif.
Byrd's move set off an avalanche of changes in Senate committee chairmanships. Sen. Jay Rockefeller, D-W.Va., is poised to take over from Inouye as chairman of the Commerce Committee; Sen. Dianne Feinstein, D-Calif., is in turn ready to take over for Rockefeller at the Intelligence Committee; and Charles Schumer, D-N.Y., would chair the Rules Committee spot vacated by Feinstein.