The Director-General of Health, Stephen McKernan, has announced he is stepping down.

"I have decided not to seek reappointment after my current term expires at the end of July," Mr McKernan said in a statement today.

His decision has sparked speculation he was unhappy with the establishment of the National Health Board, set up under former Treasury secretary Murray Horn to oversee the $9.7b a year DHBs spend on primary and hospital services.

"While we face significant challenges, we can be proud of a health system that is world class in many areas. We're seeing marked improvement in key areas such as access to elective services, reducing smoking rates and improving access to primary care, coupled with an overall increase in life expectancy. However, with an ageing population, increasing demand and tight economic circumstances, we must continually challenge where services are provided and how they are planned and funded," he said.

"I've made this announcement now to allow five months for the State Services Commissioner to recruit my replacement.  It will also let me focus on managing some of the organisational and system-wide changes that are currently underway."

Mr McKernan has been the Director-General of Health and Chief Executive of the Ministry of Health since July 2006. He is the Government's principal advisor on health and disability matters.

He has held senior executive roles in the New Zealand health system for the past 18 years.

Mr McKernan said he was discussing a number of options and would make an announcement about his future in due course.