Lippi announced his move after Guangzhou clinched their fourth successive Chinese Super League title on the final day of the season Sunday with a 1-1 draw at Shandong Luneng.
"It is my last match as a head coach for the club," said Lippi, who led the Guangdong club to AFC Champions League glory in 2013.
"I will be 67 years old in the near future, and I do not want to be the head coach any more," he added, according to Xinhua news agency.
Lippi will become the team's chief technical officer, Xinhua said, possibly the last stop in an incredible career in which he won five Italian Serie A titles, a UEFA Champions League and the World Cup with the Italian national team in 2006.
Cannavaro, his talismanic captain during the Azzurris' fourth World Cup victory, will be unveiled as Guangzhou's new coach next week, according to Chinese media reports.
"It is understood that, if all goes smoothly, Cannavaro will arrive in Guangzhou next week when the club will hold a press conference to formally launch the new coach to the outside world," the sports.163.com website said.
Meanwhile, the U Sports news portal said Liu Zhuo, vice president of Evergrande Real Estate Group, which owns the football club and is one of the country's largest property developers, had confirmed Cannavaro's appointment.
The former centre-back is currently being investigated by authorities in his home city of Naples on suspicion of illegally sidestepping one million euros ($1.27 million) in tax.
The 41-year-old had a glittering career at Parma, Juventus and Real Madrid and won the world player of the year award in 2006.
He is currently on the coaching staff at Al-Ahli in the UAE.
Guangzhou lost four games over the 30-game season, three more than last year.
The club, widely regarded as Asia's richest, has former Italian internationals Alessandro Diamanti and Alberto Gilardino on its books.
It also has a large proportion of the Chinese national team and star Brazilians Muriqui and Elkeson, the latter scoring 28 goals in 28 league games during the campaign.
Lippi is one of the world's highest-paid managers, earning an estimated $11 million in the 2012-13 season, France Football magazine said.