Daniel Zhang, the outgoing chairman and CEO of Alibaba, has stepped down from his position running the company's cloud division in a surprise move announced just months after he assumed the pivotal role.

Alibaba's stock tumbled 3% on Monday in Hong Kong following the announcement.

Zhang will now fully exit the Chinese tech giant's core management team as it undertakes its biggest ever restructuring amid a worsening downturn in the world's second largest economy.

Just three months ago, Zhang, 51, said that a key reason he wanted to step down as company chief was because he needed to focus on the spin-off of its cloud business.

"We were surprised by the announcement," Citi analysts wrote on Monday.

"Mr Zhang may have wanted to step back from the public spotlight, in our view," they added without elaborating.

Eddie Yongming Wu will succeed Zhang as acting chairman and CEO of its cloud unit, Alibaba said Monday.

"The company will continue to execute its previously announced plan to spin off Alibaba Cloud Intelligence Group under a separate management team to be appointed," it said in a stock exchange filing.

In May, Alibaba announced it aimed to complete the spinoff of its cloud unit in the next 12 months and intended to make it an independent publicly listed company.

Joseph C Tsai, a company co-founder, has assumed the role of chairman of Alibaba Group, while Wu has taken up the position of chief executive officer and director, Alibaba said, saying the company's leadership transition had been completed.

It comes as one of China's most iconic companies undergoes a historic overhaul amid an economic slowdown and an ongoing campaign by the Chinese government to reduce what it calls the "monopolistic nature" of internet companies.

In an internal letter to employees obtained by CNN, Tsai said he and Wu look forward to embracing "the next phase" of Alibaba's development.

"This past March, we embarked on our most ambitious reorganization in Alibaba's 24-year history — "1+6+N" — in order to position the company for the future," he wrote on Sunday, referring to Alibaba's organizational structure after the restructuring — 1 holding company, six business groups and various businesses.

"Under Daniel's and our team's dedicated efforts, the reorganization is making steady progress while our business continues to grow."

Tsai is also the owner of Brooklyn Nets and New York Liberty, and is the chairman of South China Morning Post, a Hong Kong-based newspaper owned by Alibaba Group.

Significant restructuring

In March, Alibaba announced it would split into six separate units, including cloud, e-commerce, logistics, media and entertainment. Each unit would be overseen by its own CEO and board of directors, and most of them would be able to pursue separate listings or fundraisings.

It was the "most significant governance overhaul" in the company's history, Alibaba said at the time.

The restructuring was perceived by analysts to be an effort by Alibaba to align with Beijing's desire to break up monopolies and curb the influence of tech firms.

Analysts said Zhang's departure from the cloud business came as a surprise, but should not affect a potential IPO of the unit.

"Our understanding is today's news doesn't impact progress for the cloud division's spin-off and IPO, or for the broader reorganization," said Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies.

Alibaba's most recent quarterly earnings "were very strong," with overall revenue up 14% compared to the previous year and domestic e-commerce revenue up 12%.

"Despite economic headwinds, Chinese e-commerce sales continue to perform well, and the regulatory pressure Alibaba previously faced has been lifted," he noted.

Tsai said in the letter that Zhang had expressed his wish to transition away from his role as chairman and CEO of the cloud unit.

"Following careful consideration, the Alibaba board respected and accepted Daniel's decision," he said.

Zhang will establish a technology fund with a $1 billion investment from Alibaba, which will support the parent firm's strategy of investing for future growth and developing the company's technology ecosystem, Tsai said in his letter.

Zhang has worked at Alibaba for 16 years, during which he created the Singles Day shopping festival, which has become China's biggest online shopping event.

He also guided teams to "transition our business from desktop to mobile" and confronted myriad challenges with a "steady hand," including the Covid-19 pandemic and dramatic changes in the larger business environment, Tsai said.