The Our Ukraine party's decision was reached on Tuesday night after lawmakers voted to reduce the president's powers, and was officially announced to parliament on Wednesday morning.
Yushchenko earlier accused Prime Minister Yulia Tymoshenko of "treason and political corruption" over her failure to back the president in his support for Georgia and condemnation of Russia in the recent conflict over South Ossetia. The premier is widely expected to run against Yushchenko at the next presidential election.
The decision was approved late on Tuesday by 39 out of 64 party members, and will come into force in 10 days, the Ukrainian Pravda news website said, citing a party official.
The new laws adopted by parliament on Tuesday stripped the president of his veto on prime ministerial candidates, and facilitated the procedure for impeaching the president.
Tymoshenko's party has been accused of siding with Russia by refusing to condemn the country's move last week to recognize Georgia's breakaway regions of South Ossetia and Abkhazia as independent countries. Opposition leader Viktor Yanukovich backed Russia's decision.
After the coalition split comes into effect, Ukrainian lawmakers will have 30 days to form a coalition government. If they fail to do so, the president will have the right to dissolve the parliament.
Ukraine's pro-Russian former prime minister, Yanukovich, who heads the Party of Regions, has said that he does not rule out the possibility of forming a parliamentary majority with the Yulia Tymoshenko Bloc.