Blair take his retirement package
35-year-old Blair joined Glasgow this season and has made 12 appearances.
The 85-capped former Scotland international has had an illustrious career, representing Edinburgh Rugby, Brive, Newcastle Falcons and Glasgow.
Blair played his first professional game in 2001 at Edinburgh and spend ten years with the club. His highlights at Edinburgh included being runners-up in the Magners League in 2009 and reaching the semifinals of the European Cup in 2012.
The most capped Scotland scrumhalf has captained his country on 14. His resume include Scotland's Player of the Year in 2008, and a nominations for the World Player of the Year that same season.
He toured South Africa with the British and Irish Lions in 2009, before retiring from international rugby at the start of 2013, aged 31.
Blair, who is currently sidelined with concussion, made his last appearance for Glasgow in the win over Cardiff Blues.
Talking about his immediate retirement, Blair said: "With only a few games left this season, I have unfortunately run out of time to be able to regain my fitness before the end of this campaign.
"I will definitely miss the camaraderie on the pitch and in the changing room, but it's time to move on and a new challenge awaits,"
Blair's new role see him form part of the coaching group as an assistant, with a primary focus on attack and skills, as well as continuing his work as a scrumhalf coach.
"It was always my intention to move into a coaching role.
"My recent spell on the sidelines has allowed me to start coaching earlier than expected, working with scrumhalves Henry Pyrgos, Grayson Hart and Ali Price, all of whom are currently playing very well. They have been a pleasure to work with and I look forward to working with them more as the season draws to a close and extending this role to the rest of the squad as we move into next season," he added.
Glasgow coach Gregor Townsend stated how he feels about the retirement: "It's disappointing that he is not able to finish his career on his own terms, but he can reflect on a brilliant career both at club and at international level."
While Townsend is disappointed in the loss of a good player, simultaneously he is delighted with the new addition to the coaching staff.
He said: "Mike's influence off the field has already had an impact at the club, as our three scrumhalves are all playing well and that is partly down to Mike's coaching and guidance.
"We're looking forward to him joining us in a fulltime role as a coach next season. He has helped me with the analysis of opposition and he has some great ideas at improving our attack."