The 45-year-old from Wallaceburg, Ont., will be replaced by assistant coach Jukka Jalonen after the worlds. "We will try to carry on the tradition what Finnish hockey is all about - hard working," Shedden said.
Finland reached the Olympic final earlier this year but lost to Sweden. The Finns also took the bronze medal at the worlds in Latvia.
The 2007 world championship will be played in Moscow while the 2008 tournament will be split between Quebec City and Halifax.
"It is an advantage to have Doug at the worlds in Canada 2008, to be played in small rinks, and with most of the players from North American teams," Finnish Hockey Association president Kalervo Kummola said. "Doug is a brilliant coach who also motivates players, unearths their strengths, and he has got a strong authority."
Shedden will continue to coach Jokerit, one of the top clubs in Finland, as well as the national team. He came to Jokerit from Helsinki rival IFK and led the team to semifinals last year.
Shedden played 416 games in the NHL, mainly for the Pittsburgh Penguins. As a coach, he led the Wichita Thunder and the Memphis Riverkings to two Central Hockey League titles each, and won a United Hockey League title with the Flint Generals.
Shedden also spent two years coaching the St. John's Maple Leafs in the American Hockey League.
He turned down a chance to become an assistant coach with Anaheim before the 2005-06 NHL season to stay in Finland. He also had a chance to coach Swiss team SC Bern, a wealthy club which has the top attendance average in Europe.
"If money should have been the most important thing, we would have chosen Switzerland," Shedden said. "Now we might stay in Finland for a long time. (Daughter) Lydia wants to go to school here."