The 56-year-old has overseen the progress of the likes of Cesc Fabregas and Jack Wilshere, and Wenger says the Club will search extensively for a suitable replacement.
"It's a massive loss for us," Wenger told Arsenal Player. "He's come out [with the announcement] so early so that we can prepare in a serene way. I regret that he is leaving because he's done a top-quality job here and I have a very good understanding with Liam.
"Hopefully, we will be able to replace him with somebody who can continue his work. That's a very important department for us, especially considering our policy. We really have to be very careful on what's happening after him.
"We need somebody who has an experience of youth development, can give guidelines to the way we want to play football, and can organise the whole technical department from a very young age up to 18 years old. It's important that the person has a knowledge of the development of the players."