Mr. Ma said he will remain Alibaba's executive chairman during the year-long period to ensure a "smooth and successful" transition, and stay on as an Alibaba director until a shareholder' meeting in 2020.
The former English teacher, who is said to be worth more than $40bn (£31bn), revolutionised how Chinese people shop and transact.
As the Indian e-commerce space flourishes - with Walmart's acquisition of Flipkart and Amazon pouring in millions of dollars - recent media reports indicated that Ma has plans to invest into Reliance Retail Ltd which, if true, will see Alibaba have physical presence and a bigger retail clout in India.
"Starting the process of passing the Alibaba torch to Daniel and his team is the right decision at the right time, because I know from working with them that they are ready", Ma said in the statement.
In the announcement, which coincided with his 54th birthday, the Chinese business magnate noted that his 46yo successor Zhang has been with the company for 11 years and has demonstrated "superb talent, business acumen and determined leadership".
Since Mr. Zhang, known as Zhang Yong in mainland China, was named chief executive in May 2015, "Alibaba has seen consistent and sustainable growth for 13 consecutive quarters".
Zhang's appointment may come as a surprise to those accustomed to tracking Ma's other high-profile lieutenants, such as Vice Chairman Joseph Tsai.
"I sat down with our senior executives 10 years ago, and asked what Alibaba would do without me", Jack said in an interview with the South China Morning Post, which Alibaba owns.
Ma is moving on with Alibaba in a dominant position in China and pushing into overseas markets from Southeast Asia to Russian Federation.
Zhang will also retain the CEO title, the company said. Alibaba Cloud, the Cloud-computing arm of Alibaba Group, provides computing services to businesses of all sizes globally.
"Ma possesses an enviable clarity about how everything fits together", said Mark Tanner, founder of Shanghai-based research and marketing company China Skinny.
Image copyright Getty Images Image caption Jack Ma says he wants to return to education because this is what he "loves to do". He has created a foundation in his own name, modeled in part on the efforts of Microsoft Corp.co-founder and fellow billionaire Bill Gates.