Armed forces chief Pierre de Villiers announced his resignation on Wednesday morning, following a row with Macron over reductions in the defence budget that led to the president to remind the armed forces "I'm your boss!".
This is the first time a chief of staff has resigned since the post was created in its present form in 1962.
"I no longer feel able to ensure the sustainability of the model of the armed forces that I think is necessary to guarantee the protection of France and the French people," the 60-year-old general said in a resignation statement.
The government announced later that General François Lecointre, 55, who was head of military affairs in Prime Minister Edouard Philippe's office, will replace him.
'Not going to be screwed'
The row blew up after de Villiers told a behind-closed-doors parliamentary committee that he would not be "screwed like that" when opposing a reduction of 850 million euros in the defence budget, as part of a 4.5-billion-euro nationwide cuts package.
Macron hit back at a ceremony for the military on the eve of the traditional Bastille Day parade.
"I do not consider it honourable to take certain debates into the public sphere," he told the assembly of officers and rank-and-filers.
Without referring directly to de Villiers, he reminded them that he was the "boss".
He has promised to raise defence spending to two percent of GDP by 2025, he went on, "And I do not need any pressure or comments in that respect."
The president went even further later, declaring in a newspaper interview, "If something pits the military chief of staff against the president, the chief of staff changes."
De Villiers met Macron to announce his resignation on Wednesday morning, according to sources, ahead of a general staff meeting where Admiral Philippe Coindreau stood in for him.
Military claims to be overstretched
Macron's promise to raise defence spending's share of GDP actually originated in a proposal de Villiers made several months before the presidential election.
Claiming that the military was overstretched by the fight against terror, especially in operations such as that in Mali and the Sahel, he called for an annual budget of 42.5 billion euros by 2022.
According to the military, there is an urgent need to update equipment, especially refuelling aircraft, helicopters and armoured vehicles.
Macron started his term with a number of defence-friendly gestures - arriving for his swearing-in in a military vehicle, visiting a military hospital after it, flying to see the troops in Mali within a week and taking a ride in a nuclear submarine at the beginning of this month.
And he insists he will reach the two percent of GDP target but he appears to have faced down de Villiers, for now at least.
Warnings of political fallout
But, as the row headed for its climax, other officers warned that Macron could pay a political price, both inside and outside the armed forces, if soldiers are killed in action and their deaths are blamed on poor equipment.
"This is a major crisis, which will have enormous consequences," warned General Vincent Desportes, a former head of the country's top military academy, adding that the situation was "not far from" President Recep Tayyip Erdogan's confrontation with the Turkish military and other state institutions.
"This resignation illustrates the very serious excesses and the very worrying limits of Monsieur Macron, as well as his attitude in politics," Marine Le Pen, the leader of the far-right National Front, said in a statement.
"The excess of authoritarianism of @Emmanuel Macron brings about the resignation of Chief of Staff Pierre de Villiers, bad news for our army," tweeted Damien Abad, an MP from the right-wing Republicans who sits on the parliamentary defence committee.
Even hard-left MP Alexis Corbière, who is also on the committee, declared that "the general was only doing his duty" and judged the president's repoaches to him "intolerable".