Former Seattle Sounders boss Schmid conceded his timing was "unfortunate" after confirming the decision on Monday amid a six-match winless streak.
The 65-year-old's announcement comes just over a week on from a 6-2 defeat at Real Salt Lake which has left Galaxy three points adrift of the play-off places.
Schmid returned for a second stint in charge in July last year but, having finished bottom of the Western Conference in 2017, has been unable to replicate the success that saw him win the MLS Cup in 2002, despite the arrival of former Manchester United striker Zlatan Ibrahimovic.
Assistant coach Dominic Kinnear – who spent time in charge of San Jose Earthquakes and Houston Dynamo – will take over the top job until the end of the season.
"After careful consideration, I have decided to step away from coaching at this time, but would like to remain in the game," Schmid said in a statement.
"With six games remaining as the club fights for a playoff spot, I understand the timing of this decision is unfortunate.
"However, I believe this group can come together and fight for a spot this season under Dom's guidance."
Galaxy's first match under Kinnear is a weekend trip to Toronto FC.