Cleary fronted a press conference on Wednesday to announce he would not sign a new deal at the Panthers, bringing the curtain down on the greatest modern-day dynasty in Australian rugby league.
The 55-year-old said he had wrestled with the decision for the last 12 months, but ultimately felt the time was right to end an NRL coaching career that began in 2006.
"It's a decision that I obviously haven't taken lightly but that I've thought about for quite a long time," he said.
"Part of being a coach and a leader is you kind of gain an intuition over many years, and I feel really strongly that this is the right time for me to step aside."
Cleary will not consider future NRL club jobs, but is open to coaching at representative level and will remain involved with the Panthers in an advisory role.
A veteran of 240 NRL games, Wallace will take on his first NRL head-coaching role after serving on Cleary's staff since 2023.
He is currently the Panthers' defensive coach and is a popular figure with the playing group.
"I know I've done the right thing because the cheer they gave when 'Wal' got the nod almost took the roof off," Cleary said.
Cleary's decision is set to have major ramifications on the powerhouse club's roster for the years to come.
His son and the club's halfback Nathan is also off contract next season, along with captain Isaah Yeo and representative back-rower Liam Martin.
The Panthers' difficult task to keep their stars in-house has been compounded by the looming arrival of the PNG Chiefs, who can offer tax-free salaries from their inaugural 2028 season.
The Penrith coach, in his second stint at the club, has built the most dominant team of modern times.
Cleary left Wests Tigers at the end of 2018 to coach his son and while they missed the finals in their first season together, the Panthers have only tracked upwards.
They won the minor premiership in 2020 and were beaten in a grand final by Melbourne before claiming four straight premierships between 2021 and 2024.
Penrith lost to eventual premiers Brisbane in last year's preliminary final.
Cleary's men have tasted defeat just once so far this campaign and sit top of the table heading into a Magic Round meeting with St George Illawarra on Sunday.
"This is not a time for thank yous or reflections, I still have 18 months in the saddle, so to speak. I honestly woke up this morning thinking about the Dragons and how we're going to beat them this week," Cleary said.
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