Colao, who has been chief executive since July 2008, will be replaced by chief financial officer Nick Read.
Deputy chief financial officer will succeed Read at the annual general meeting in July.
Chairman Gerard Kleisterlee said: "On behalf of the board, I would like to express our gratitude to Vittorio for an outstanding tenure. He has been an exemplary leader and strategic visionary who has overseen a dramatic transformation of Vodafone into a global pacesetter in converged communications, ready for the Gigabit future.”
In mid-morning trading, Vodafone shares were down 2.7% at 201.6p.
"After 10 years of stability under Colao, Vodafone is potentially setting sail into uncharted waters under the guidance of an executive that has been with the company only 4 years and has less top level experience than the markets would have been fully comfortable with," said Artjom Hatsaturjants, research analyst at Accendo Markets.
Vodafone swings to profit but revenues fall
The announcement was made alongside the group’s financial results for the year to 31 March 2018.
Vodafone delivered an attributable profit of €2.5bn, compared to a loss of €6.3bn in 2017 when the company incurred a one-off €4.5bn charge in relation to merging its India business with the country’s mobile phone provider Idea Cellular Limited.
“We have made good progress in securing approvals for the merger with Idea Cellular in India - which is expected to close imminently - and appointed the new management team, who will focus immediately on capturing the sizeable cost synergies,” Colao said.
“In addition, we agreed the merger of Indus Towers and Bharti Infratel, allowing Vodafone to own a significant co-controlling stake in India's largest listed tower company.”
Total revenue fell 2.2% €46.6bn, reflecting foreign exchange headwinds and the negative impact from the deconsolidation of Vodafone Netherlands following the creation of the VodafoneZiggo joint venture with Liberty Global.
Organic revenue rose 1.6% as broadband market share gains and demand for data offset a drag from new regulation that allows mobile users in the European Union to use free data roaming across the bloc.
Organic adjusted underlying earnings (EBITDA) increased 11.8% to €14.7bn, beating the company’s guidance for about 10% growth.
Excluding the negative impact of net roaming declines in Europe, the benefits of settlements in the UK and Germany and the introduction of handset financing in the UK, organic adjusted EBITDA grew by 7.9%.
Dividend hiked as Vodafone predicts earnings growth in 2019
Vodafone raised its final dividend by 2% to 10.23 cents.
“We expect to sustain our profit growth in the year ahead, despite the arrival of a new entrant in Italy and competitive pressure in Spain, supported by the third year in a row of lower net operating costs,” Colao said.
Vodafone expects organic adjusted EBITDA growth, excluding settlements and UK handset financing, of 1-5%, implying a range of €14.15-14.65bn.
Earlier this month, Vodafone agreed to buy Liberty Global’s cable operations in Germany and Central Europe in a deal valued at €18.4bn.
READ: Vodafone to be Europe's leading next generation network owner after €18.4bn Liberty Global deal
The group said the deal would create a “converged national challenger to the dominant incumbent in Germany”, Deutsche Telecom, and “transforms our predominately mobile-only operations in Central & Eastern Europe”.