With 23 years experience at the gallery, Ms Flanagan's work in gallery operations and presentation made her "the logical choice as deputy director and then acting director when former director Edmund Capon retired," a statement from the gallery said.

To the surprise of some, she wasn't appointed as permanent director.

In a statement on Thursday, the new director Michael Brand said Ms Flanagan would "be greatly missed by the entire gallery staff and by all her other colleagues in her role as deputy director of the gallery".

"Anne is an exceptional and highly accomplished individual whose professional contribution to the gallery and the Australian arts community over a 23 year period is vast," he said.

Mr Brand said he looked forward to working with Ms Flanagan as she continued to support the Sydney Modern project in "other capacities".

It is envisaged that Ms Flanagan will remain involved in committees working on the new project although the exact details are still being finalised.

Ms Flanagan said it had been a fabulous 10 years developing the masterplan for the new project, and working with stakeholders.

An international panel, headed by Mr Brand, chose the winning architecture firm last month but the decision won't be announced until late May.

Ms Flanagan said she had been determined and tenacious in wanting to get to this point with Sydney Modern.

"I felt very strongly that I wanted to have the transition [from Mr Capon to Mr  Brand]. It is an amazing process, and I've been with it through its inception and it has been great to get it to that point.," she said.

Since 2005  Ms Flanagan has worked closely with the director and trustees to evolve a long-term gallery masterplan. It will double the size of the gallery's exhibition space, create a cultural plaza linking the gallery with other cultural institutions including the State Library, and provide indoor and outdoor exhibition and entertainment venues. 

"I feel this milestone, the selection of the architect to bring the masterplan to reality, is an opportune time for me to move on from my role at the gallery," she said. "Of course, I'm sad to leave something that has been an important part of my life for so many years but I am also very proud of the things accomplished. I am very excited about life ahead too.

"I would love to be there when the sods are turned, but there are other sods," she said, adding that after 23 years with the gallery it was time to go.

Suhanya Raffel, director of collections, will take up the deputy directorship.