Clark Hunt, announcing his first major decision since he became chairman of the board upon the death two years ago of his father, Lamar, said the future of coach Herm Edwards would be decided later.
Hunt also said his decision was not based on what happened the previous day, when the Chiefs lost an 11-point lead in the final 73 seconds and were beaten 22-21 by San Diego, dropping their record to 2-12.
"I had a chance to meet with Herm earlier today and I told him I was very supportive of him and the job he's done in his approach to rebuilding the football team," Hunt said in an interview with The Associated Press and the Kansas City Star.
"Ultimately, the decision on his future and the rest of the coaching staff is one the new GM will have significant input into. It will be my decision, and we'll cross that bridge when we get to it."
Peterson will serve out the remaining two weeks of the season and then Denny Thum, the Chiefs executive vice president, will be interim president. Hunt also said he would split the duties and have someone in charge of the business side and someone else in charge of football for the franchise his late father moved from Dallas in 1963.
Tight end Tony Gonzalez, one of the greatest players in team history, said he was surprised the change was made before the season ended.
"I would expect there to be other changes as well," the nine-time Pro Bowler told the AP. "When things go this badly, changes are usually made. I think most players would be supportive of Herm."
Peterson took over a sad sack Chiefs operation in 1989 and hired Marty Schottenheimer as coach. Together, they built the Chiefs into one of the league's most successful teams over the next 10 years. Year after year Arrowhead Stadium sold out and the Chiefs competed for the AFC West title.
They never did get to the ultimate goal, the Super Bowl. With Joe Montana at quarterback, they did reach the AFC title game in the 1993 season, but lost to Buffalo.
However, Kansas City faltered the past decade after Schottenheimer resigned and seemed to hit a low point with an emotionally draining loss Sunday to San Diego.
"On behalf of my family and the entire Kansas City Chiefs organization, I want to thank Carl for his two decades of service to the Chiefs," Hunt said in a written statement. "Both Carl and I agreed that immediately initiating the search for the next Chiefs general manager would be the best thing for the future of the organization, and he will be resigning following the 2008 season."
During Peterson's 20 years at the helm, the Chiefs amassed a 176-141-1 record, won the AFC West four times.
"I am proud of my association with the Kansas City Chiefs and our many accomplishments over the last 20 years," Peterson said in a statement released by the Chiefs. "I thank the Hunt family for the opportunity to lead the Chiefs organization and sincerely appreciate all the coaches, players, administrators and Chiefs employees with whom I've had the pleasure of working in my time here. Most importantly, I want to thank Chiefs fans around the country for their passionate support through the years. Chiefs fans are the finest in all of professional football."