The 61-year-old politician was diagnosed with prostate cancer in 2009 but announced on Monday that he had another cancer elsewhere in his body.
Mr Layton said that he was determined to return to the political front line. His New Democratic Party won official opposition status for the first time in its 50-year history earlier this year.
Analysts say his leadership of the left-leaning Party over the past eight years has made it a truly national force.
“On the advice of my doctors, I am going to focus on treatment and recovery. I will therefore be taking a temporary leave of absence as leader of the New Democratic Party of Canada,” said Mr Layton.
Canada’s Prime Minister Stephen Harper issued a statement wishing Mr Layton a speedy and successful recovery.