(Adds comments from employees)
By Mary Milliken and Lisa Richwine
LOS ANGELES, Feb 5 (Reuters) - Amy Pascal will step down as co-chairman of Sony Pictures Entertainment after hackers angry about a movie she championed mocking North Korea's dictator exposed a raft of embarrassing emails between Pascal and other Hollywood figures.
One of the most powerful women executives in Hollywood, Pascal had kept a low profile since her emails were leaked by hackers and widely reported by media, particularly one in which she made racially insensitive remarks about President Barack Obama's taste in films.
Sony Pictures said Pascal will step down from her current post in May to launch her own production venture on the studio lot with its financial backing.
Sony Pictures Chief Executive and Chairman Michael Lynton told Reuters the emails leaked late last year played no role in his and Pascal's decision not to renew her contract in March 2015.
The entertainment arm of Sony Corp was victim of the most destructive cyber attack on a private company on U.S. soil.
The U.S. government has blamed the hack on North Korea after the reclusive nation was angered by a Sony comedy "The Interview," depicting the fictional assassination of leader Kim Jong Un.
Pascal had greenlighted the movie, which opened in limited release after the studio reversed a decision, condemned by Obama, to cancel its theatrical release.
Having her emails laid out for all of Hollywood to see appeared to be a big blow to the 56-year-old studio boss known for her good relationships with actors and her backing of edgy films like "Zero Dark Thirty" and "The Girl with the Dragon Tattoo."
In an email exchange between Pascal and producer Scott Rudin that was reported by website Gawker, Rudin called famed actress Angelina Jolie a "minimally talented spoiled brat" because of her demands during a remake of "Cleopatra." Jolie has not responded publicly to the remarks since the email exchange was disclosed.
In another email, Pascal joked about President Obama's race and his taste in movies. Pascal subsequently issued a public apology for "insensitive and inappropriate" emails, and met with civil rights activist Reverend Al Sharpton, who did not call for her to step down.
Several celebrities also came to her defense, arguing that no one should have their private emails picked over in public.
"I would hope that we would not stand in such harsh judgment in a moment of time when someone is hacked in their private conversations," media mogul Oprah Winfrey told CNN when asked about the remarks about Obama.
Pascal, who joined Sony's Columbia Pictures in 1988, said she and Lynton had been discussing her transition to producer for "quite some time."
"As the slate for the next two years has come together, it felt like the right time to transition into this new role," Pascal was quoted in a statement from the company. "I am leaving the studio in great hands."
Two employees at the studio in Culver City, California, said they were not surprised that Pascal was leaving the post after the tumult of recent months and that she will be missed.
"Amy really contributed to treating her employees really well," one of the employees told Reuters on the condition of anonymity because they are not authorized to speak.
Sony did not immediately disclose who would be taking over her post. But Sony employees have said one possible successor could be Michael De Luca, producer of "The Social Network" and the upcoming "Fifty Shades of Grey," who was hired in 2013 as president of production at Sony's Columbia Pictures unit.
Lynton and Pascal have endured a tough few years, from an activist investor's challenge to their leadership to job cuts after a few notable bombs like "White House Down" and Will Smith's "After Earth."
Lynton told Reuters last month that the costs of the hacking episode, which crippled the computer network for months, would be amply covered by insurance and that there were no more restructuring plans for the studio.
Lynton said in that interview that a major challenge would be reestablishing trust in the company and Hollywood after sensitive information such as salaries and private emails was posted online.
"I am very confident we can return to normal, but I think that level of transparency on some of those issues creates trust issues," he said.
Pascal's new production venture will focus on film, television and theater, the studio said. As part of a four-year agreement, Sony Pictures will finance Pascal's venture and retain distribution rights to the films. (Additional reporting by Piya Sinha-Roy and Dana Feldman in Los Angeles; editing by Christian Plumb and Gunna Dickson)