In an email to councillors and officials, Mr Tierney said "much has been achieved" under his tenure, despite the council's financial woes.
"I hope you will appreciate that it is a huge decision for me to leave the city council. I was very honoured to have been selected to be city manager and felt privileged to be able to carry out the role for over six years. Despite a very difficult financial environment for the majority of my time as manager, much has been achieved."
Mr Tierney will leave his current position on April 28 to take up the €200,000-a-year post.
He is set to oversee the rolling out of water charges to 1.4m homes across the country.
The news of Mr Tierney's decision comes as it emerged that owners of larger homes face the prospect of higher water charges.
It's understood that an "assessed charge" based on property size will be initially introduced until the installation of meters in 2014.