The Internet search giant Yahoo! (YHOO) said Monday night that Jerry Yang, its CEO and co-founder, would resign from his post and the company would begin searching for a new CEO effective immediately.

The announcement comes as Yahoo's business continues to fall behind against the Internet behemoth Google (GOOG) in online advertising and search, and after a failed possible $44.6 billion merger from Microsoft (MSFT).

The company said it hired executive search firm Heidrick & Struggles to help with the search for a new CEO that will include candidates from both inside and outside the firm.

In a statement, Yahoo! said Yang would remain with the company as “Chief Yahoo” and would remain CEO until a replacement could be found. The founder of Yahoo! came back into the CEO role in mid-2007 in an attempt to help right the company’s fortunes.

“I will continue to focus … to do everything I can to help Yahoo! realize its full potential and enhance its leading culture of technology and product excellence and innovation," Yang said in a statement.

Shares of Yahoo! were higher by 4.5% in late-evening trading.

Yang’s 18-month tenure at Yahoo! was tumultuous at best. Brought on to help Yahoo! regain what it had lost to Google, Yang was seen by some as overzealous and unwilling to work with Microsoft when the Seattle-based company approached Yahoo about a merger.

The $44.6 billion offer, which Yahoo! rejected as being undervalued, is now seen at probably the best offer Yahoo! could have gotten for the company. Shares of Yahoo, which closed Monday at $10.63, are down 54% year to date and the company is valued at a third of what Microsoft offered to buy it for.

After a Microsoft deal fell through in the first part of the 2008, Yahoo! then turned to Google to craft a joint advertising/search deal. That business deal fell through late last month after it could not get past government antitrust hurdles.

Yahoo! Chairman Roy Bostock said Yang faced “extraordinary challenges and distractions” during his tenure, but said Yang helped reposition the company for the future.

“We all agree that now is the right time to make the transition to a new CEO who can take the company to the next level,” Bostock said in a statement.