Flanagan quit after he was last month deregistered by the NRL for flouting his 2014 suspension for his part in the club's peptides scandal.
With just five weeks until the club's first trial against Manly at Lottoland, Sharks assistant John Morris has been appointed interim head coach, however, it's not known whether he will permanently take over.
Flanagan said he would respond to the NRL's show-cause notice but said he was standing down so that the club could get on with his job.
"This was obviously one of the toughest decisions of my 36-year rugby league career to resign from the head coaching role at Cronulla," Flanagan said.
"The last month has taken an enormous mental and emotional toll on my family and myself.
"I have made this decision in the best interests of the entire club and the players to allow the best possible preparation for the 2019 season without constant speculation and uncertainty as to who their head coach will be.
"I want to thank the Cronulla board and management, both past and present, as well as my dedicated coaching staff, all of whom I have worked closely with over seven seasons."
After 185 games in charge over 10 seasons, Flanagan was on track to become the club's longest-serving coach this year.
He was named as coach of the club's team of the half century after leading them to their maiden premiership in 2016.
However, his career came tumbling down after an NRL integrity unit investigation - which was examining the club's self-reported salary cap irregularities - uncovered evidence he had communicated with Sharks officials during his 2014 ban.
Flanagan was banned for 12 months - later reduced to nine months - for his part in the club's illegal supplement program under rogue sports scientist Stephen Dank during the 2011 season.
Under the terms of his ban, he was not allowed to have any involvement or contact with the club.
"While disappointed his tenure at the Sharks will come to an end, Shane can look back with pride on some outstanding achievements during his time at the helm," Sharks chairman Dino Mezzatesta said.
The club said they would finalise their coaching structure "in the coming weeks".