Martin Earwicker will step down in September 2013 after joining the central London university as vice-chancellor in 2009.
Professor Earwicker announced his retirement in an email to staff, saying he was "pleased with the progress we have made over the last three years".
In the email sent on 4 October, he says: "We are improving year-on-year; our finances are now strong - in the top third of all universities; we have been able to make further major infrastructure investments...and in a difficult year for the HE sector we have achieved a creditable recruitment outcome."
Professor Earwicker, a former director of the National Museum of Science and Industry group, which includes the Science Museum and National Railway Museum, sparked controversy in 2010 when, in a bid to avoid redundancies, he refused to pay staff the 0.5 per cent pay rise that had been negotiated nationally for higher education.
He told the Times Higher Education in February 2010 that it was "irresponsible" not to impose a pay freeze given the university's finances - echoing a decision by the institution's governors which said national pay bargaining was "no longer appropriate" for the university's planning needs.
His corporate plan for 2009-12 said it wanted to "reward people on the basis of actual delivery, not time served or prior qualifications", though London South Bank has now rejoined national pay bargaining for the 2012-13 pay round.
David Longbottom, chair of the board of governors at London South Bank University, said: "Since Martin joined us in 2009 he has been instrumental in putting the finances on a sound and sustainable footing as well as developing a culture of professionalism in the processes by which the university is managed.
"In addition Professor Earwicker has provided leadership in improving student satisfaction through a strategy of 'Putting Students First'.
"We are fortunate to have Martin with us for the current academic year prior to his retirement, during which he will continue to deliver the key priorities of our corporate plan."
The board has now started to look for a successor to Professor Earwicker.