Persimmon, who are headquartered in York, said the decision for his departure was "by mutual agreement and at the request of the company".
It added: "The board believes that the distraction around his remuneration from the 2012 LTIP (long-term incentive) scheme continues to have a negative impact on the reputation of the business and consequently on Jeff's ability to continue in his role."
Mr Fairburn will be replaced on an interim basis by David Jenkinson, currently group managing director.
Persimmon has begun a search for a permanent successor to Mr Fairburn.
Persimmon said that, as Mr Fairburn has been asked to leave by the company, it is not legally able to withhold any of the share payouts due under the controversial long-term bonus scheme.
But it said it has agreed with Mr Fairburn to cut his 12-month notice period and said he will not receive any further salary or benefits after December 31.
Fairburn bizarrely refused to answer questions about his bonus while at a Doncaster factory earlier this year - while being interviews by BBC Look North reporter Spencer Stokes. A clip of the awkward moment later went viral on social media networks Twitter and Facebook.
He has no bonus entitlement for 2018.