The Duke of York is to stand down as the UK's trade envoy.
Buckingham Palace has confirmed that Prince Andrew will give up his title as Britain's "special representative" for Trade and Investment.
The prince has been criticised over his friendship with controversial figures, including convicted sex offender Jeffrey Epstein, an American financier.
The prince has held the role as UK envoy from 2001 - his remit was to promote UK business interests abroad.
His friendship with Mr Epstein, who was sentenced to 18 months in prison in 2008 for soliciting a minor for prostitution, led to calls for Prince Andrew to step down from his role in March, but Prime Minister David Cameron gave him his full backing.
The prince's judgement has also been questioned for holding meetings with Libyan leader Col Muammar Gaddafi's son Saif, and for entertaining the son-in-law of Tunisia's ousted president Zine El Abidine Ben Ali at Buckingham Palace.
The prince's relations with Timor Kulibayev, the son-in-law of the President of Kazakhstan, have also previously been questioned. Mr Kulibayev purchased the duke's Sunninghill Park home for £3m more than its £12m asking price in 2007.
And in November 2010 a hitherto secret cable published on Wikileaks revealed a US ambassador wrote that the Duke of York spoke "cockily" during an official engagement, leading a discussion that "verged on the rude".
There have also been long-running complaints about the lavish nature of his official foreign trips.
A Buckingham Palace spokeswoman said the prince would "continue to support business in the UK", adding that he "will not have a specialist role as defined by government but will undertake trade engagements if requested".
In his 2011 annual review, published on Thursday, the duke said: "As the evolution of my role continues apace and in order to reflect the changes I have outlined, I have decided that the label I gave myself when I began this role of Special Representative has served its purpose and is no longer necessary to the work that I do today and, more importantly, in the future."
Prime Minister David Cameron said he would like to thank the duke for the "major contribution he has made over the last decade to UK trade".
"I am certain that he and others in the Royal Family will continue to support and promote British business interests both at home and overseas," he added.
The BBC's royal correspondent Peter Hunt said it was his friendship with Mr Epstein's that had "sealed the fate of a senior royal whose judgement has been called into question more than once", and it had been "inevitable" that Prince Andrew would step down since March.
Matters had been made worse when his former wife Sarah Ferguson admitted having accepted £15,000 from Mr Epstein, to help pay off her debts, he said.
"In the four months since these facts became public, royal and government officials have been grappling with the challenge of what to do with the Duke of York."
But our correspondent said there would undoubtedly be some supporters who thought Prince Andrew had opened doors only a royal could open, and said he worked hard for British business.
Former trade minister Lord Digby Jones said although Prince Andrew's title was going, his job would be "very much the same", and "the next natural step".
"With one big add on, a bit less travelling and a lot more working with apprenticeships and young people in Britain to get them skilled up to make stuff the UK can sell round the world," he said.
"[Prince Andrew has] put the country first and it's important we, as business, say, let's use what he can do to actually create some profit, employ some people, pay some tax," he said.
The UK's trade envoy worked for UK Trade & Investment (UKTI), which reports jointly to the Foreign Office and the Department for Business, Innovation and Skills.
Prince Andrew did not receive a salary but has had his expenses and travel costs paid.
In his annual review of the financial year ending on 31 March, it was revealed that he visited 15 countries in 2010/11.
He carried out 616 engagements, of which three-quarters were trade-related.