Marsh has been on the coaching staff at Northwich since February
Northwich are looking for their third manager of the season after caretaker boss Mike Marsh left the club following Saturday's 2-1 defeat by Eastbourne.
Marsh had been in charge since manager Dino Maamria was placed on gardening leave in September. Maamria was subsequently sacked in late October.
"The final nail in the coffin was having to release two players this week," Marsh told the Non-League Paper.
"Laying people off and making them lose work is not my cup of tea."
The former Liverpool midfielder will now concentrate on playing in veterans' tournaments with his former Anfield team-mates.
I told the chairman I was leaving but would take charge for one last game
Mike Marsh
"When I took over here, I explained that I had prior commitments with Liverpool," he said.
"I was willing to renege on these had my position been made permanent.
"But after discussions with chairman Jim Rushe yesterday (Friday), I told him I was leaving but would take charge for one last game.
"The players knew nothing about it until after the match, but I have had sleepless nights over the decision."
The Vics are in the Blue Square Premier relegation zone, and were knocked out of the FA Cup last week by AFC Telford United.
The club has not yet commented on Marsh's departure.
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