Milton has been at the centre of controversy since joining Johnson at the Greater London Authority in his unofficial role of senior planning adviser.
The former Westminster City Council leader was accused by Labour and Green Party London Assembly members of breaching local government rules by refusing to relinquish his position at the London borough while acting as a senior mayoral adviser.
Milton has now promised to stand down as a Westminster councillor and as chairman of the Local Government Association to take up the Deputy Mayor role.
The news has been welcomed by opposition parties of the London Assembly, who believe Johnson’s move to promote Milton is an attempt to evade further investigations into his right-hand man.
Labour's leader on the London Assembly, Len Duvall, said: ‘Boris Johnson knew Sir Simon's appointment was in breach of the law and that if he hadn't taken action to resolve this fiasco someone else was about to.
‘Of course we welcome his belated decision to do the right thing and step down, but the Mayor could have resolved this and spared everyone's blushes weeks ago, had he bothered to pay attention to the rules.’
Duvall added: ‘He has been very slap-dash in handing out titles and positions to people. This is the latest blunder that proves he should have taken a little more time and paid more attention to the rules before rushing ahead with politically expedient appointments.’
The Mayor’s office maintains the appointment will be ‘subject to the appropriate procedures’, with an interview panel chaired by Greater London Authority chief executive Anthony Mayer.