NEW DELHI—Pakistan's central bank governor stepped down Wednesday after submitting his resignation in early May, the government said late Wednesday, halfway through his three-year term and two days ahead of the federal budget announcement.

Mr. Raza's decision hinged on the fact that the government declined to offer him an extension in his post, a senior government official said Thursday. Under the State Bank of Pakistan Act, no person over 65 years can hold the central bank's top job. The 64-year old former Citigroup banker...