"After being in piracy for eight years, I have decided to renounce and quit, and from today on I will not be involved in this gang activity," Mohamed Abdi Hassan, known as "Afweyne" or "Big Mouth", told reporters late Wednesday.
Afweyne did not provide a reason for his decision to quit piracy, but speaking at a ceremony in the central Somali region of Adado, he said he has been working to persuade other pirates to follow his example.
"I have also been encouraging many of my colleagues to renounce piracy too, and they have done it," said Afweyne, who is believed to be in his 50s.
His announcement comes amid a sharp drop in the number of pirate attacks in Somalia, which are at a three-year low, thanks to beefed up naval patrols and teams of armed security guards aboard ships in the Gulf of Aden and the Indian Ocean.
Last year Afweyne was described as "one of the most notorious and influential leaders" in Somalia's pirate hub Hobyo, in a report by the UN Monitoring Group on Somalia and Eritrea.
Afweyne, whose son is also a much feared pirate commander, was involved in the 2008 capture of the Saudi-owned Sirius Star oil supertanker, released for a ransom of several million dollars.
His or his son's men were also involved in the 2008 capture of the MV Faina, a Ukrainian transport ship carrying 33 refurbished Soviet-era battle tanks, which was released after a 134-day hijack for a reported three million dollars.
Afweyne is also reported to have carried out a string of attacks against ships carrying World Food Programme aid to his war-torn and impoverished nation.
Last year he was reportedly given a diplomatic passport by Somalia's then president, Sheikh Sharif Sheikh Ahmed, according to the UN monitoring group's June 2012 report.
Sharif told the UN experts that "Afweyne's diplomatic status was one of several inducements intended to obtain the dismantling of his pirate network", the report read.
Somalia has been ravaged by a relentless conflict since 1991, and a lack of effective central authority has allowed pirate gangs, extremist militia and other armed groups to control mini-fiefdoms.
However, the political situation in Somalia has improved in recent months, with the selection of a new government and the massive military advances made against Islamist forces by African Union and government soldiers.
Local officials welcomed Afweyne's announcement, adding they hoped it would encourage others to follow.
"We are very happy that the young men are now renouncing piracy," said Mohamed Aden Ticey, head of the local authority in the Adado region.
"We call on the international community to help these young men rehabilitate so that they could be educated," he added.
The European Union Naval Force's anti-piracy operation, which is patrolling off the Somali coast, said that "anything which reduces attacks is welcome", noting a sharp drop in attacks in the past three years.
However, while the pirates have lost ground, the International Maritime Bureau (IMB) still warns that Somalia's waters remain extremely high-risk.
Eight boats and 139 hostages are still held by Somali pirates, according to the IMB, while some pirates have turned to land-based kidnapping and banditry instead.
But local security forces are also moving against some pirate bases, with troops from the northern Puntland region last month rescuing 22 hostages held for almost three years after their boat, the MV Iceberg 1, was captured.