As part of Scott's contract he has been allowed to split his time between the UK and Australia but he was recommended by the review panel to reside permanently in Britain as a condition of his employment.
That is situation Scott, who joined British Swimming 2007, says he is unable to accept, citing personal and family reasons, with the Australian handing in his resignation as a result and the governing body accepting it.
It was announced back in April that Scott would continue in his role as national performance director through to the Rio 2016 Olympics however British Swimming's London 2012 failure and subsequent review meant it was never that simple.
Britain's swimmers failed to hit their medal target of five to seven at London 2012, winning just three, two bronzes from Rebecca Adlington and a silver from Michael Jamieson, leading to a review into what went wrong and why.
Scott will officially leave his post on November 30 with the review to be considered by the board of British Swimming early in December, and the Australian admitted his resignation may be for the greater good.
"I respect this conclusion from the performance review I initiated following our results in London. I wanted to make sure we left no stone unturned in understanding why we didn't achieve our goals," said Scott.
"One of the key findings of the review requires a change to my current working practice by being based in Britain. However, for personal and family reasons, I'm unable to meet this recommendation and therefore offered my resignation."
Scott follows British Swimming head coach Dennis Pursley and Loughborough ITC head coach Ben Titley out of the organisation's door since London 2012 while a host of athletes including world 100m backstroke champion from 2009 Gemma Spofforth have retired.
British Swimming chief executive David Sparkes refused to comment on the standing of his own position but admitted that it was with regret that he allowed performance director Scott to leave his post.
"We are sorry to be losing Michael at this time and wish to pay a tribute to all of the hard work he has put into the programme since joining British Swimming in 2007," said Sparkes.
"Michael's leadership has delivered some of the best results we have seen in recent years at Olympic, World, European and Commonwealth level.
"He leaves Britain with our sincere thanks and we wish him well for the future. The hunt will now begin to find a new performance director to initiate the recommendations within the Olympic review and to make the next big step change towards Rio in 2016."