Mr Ellison will take early retirement in June with a£90,000 pay-off from his£70,000 post after 16 years as chief executive.
Both parties are refusing to comment on the departure but documents obtained by LGC show the unexpected move was initiated by leader Pam Warhurst, who wants a change at the top to help Labour get its policies across more effectively.
Mr Ellison has been increasingly marginalised in recent months and was gradually excluded from the decision making process.
His leaving package includes a pension contribution of£21,000 a year from the council, which is facing spending cuts of£6.5 million.
In his official leaving statement he said: 'I am satisfied I will be leaving Calderdale in much better shape than it was when I joined it. But rather than look back I would prefer to look forward.'
Pam Warhurst said: 'Over the past few months Michael and I have talked about his plans and those of the council.
'After so many successful years with the council Michael had nothing else to prove.
'Everyone here will join me in wishing him the very best for the future.'