Williamson fashioned a record of 40 matches in charge for a 55 per cent winning record with 22 wins, 10 losses and eight draws.
The next best is Latham’s 44 per cent, with four wins from nine tests, then Geoff Howarth’s 37 per cent with 11 wins from 30.
Williamson led New Zealand to the inaugural world test championship last year.
“Captaining the Black Caps in test cricket has been an incredibly special honour,” the 32-year-old said.
“For me, test cricket is the pinnacle of the game and I’ve enjoyed the challenges of leading the side in the format.
“Captaincy comes with an increased workload on and off the field and at this stage of my career I feel the time is right for the decision.
“After discussions with NZC, we felt that continuing to captain the white-ball formats was preferable with two World Cups in the next two years.”
Black Caps coach Gary Stead said Williamson had been a fine test captain.
“Kane’s guided the test team through an immensely successful period which is testament to his ability to bring people together and work towards a common goal.
“He’s certainly led from the front with his own performances and that was very much the case during our push to win the World Test Championship.
“The test team has continued to evolve and develop during his time and the fact we’ve been able to introduce new players and see them thrive almost instantly is a credit to Kane and his leadership.
“We hope by lessening his workload we can continue to see the best of Kane Williamson for longer on the international stage, and we know he will remain a key leader in this group.”
Stead said the decision to appoint Southee captain came down to the direction in which the test team wanted to head.
“Tim’s a quality leader with a good cricket brain.
“We’ve seen his captaincy skills on display with the T20 side and I’m sure he’ll continue to bring an aggressive style, whilst still maintaining the core fundamentals of how this Black Caps team operates in the test arena.
“He will also come from a slightly different perspective in being a bowler which I’m sure will also bring with it new ideas and fresh thinking.”