Shwe, the despot who has brutally ruled Southeast Asia's poorest country as commander-in-chief of the armed forces since 1992, on Friday handed control of the army to his adjutant general.
However, according to The Telegraph, the 77-year-old will remain head of the government.
More than a dozen other senior military officers also resigned, in an ominous sign for the country's forthcoming elections.
Inside Myanmar, Shwe's resignation of his military role is being seen as a significant step towards ensuring he and his military cadres remain in charge after the November 7 elections, the first to be held in the country after two decades.
"I think this means only one thing -- he wants to be president," a source inside Myanmar told The Guardian.
The country's new constitution says a civilian can only hold the presidency, but it does insist the president and vice-president "shall be well acquainted with the affairs of the Union, such as the military".
It is the second major reshuffle since April, when 27 senior military figures, including Prime Minister Thein Sein, resigned.
The main opposition party, the National League for Democracy, led by Aung San Suu Kyi, won Myanmar's last elections in 1990 with an overwhelming margin. But the Junta refused to recognise the result and Aung San Suu Kyi has spent most of the past two decades in detention.
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