The former England international, 32, made just three starts in all competitions during the 2011-12 season, scoring three goals in the Carling Cup.
He has played only a marginal role since joining the club from Newcastle United on a free transfer in the summer of 2009 and departs Old Trafford having made only six league starts in three seasons.
Owen wrote on Twitter on Thursday morning: "The manager informed me after our testimonial match on Tuesday that the club would not be offering me a new contract.
"I have loved every minute of the three years I have spent at such a fantastic club.
"I now plan to have a short holiday during which I will contemplate my next move."
Owen, who started his career at United's bitter rivals Liverpool, was never able to secure a regular place in the United starting XI with Dimitar Berbatov and Wayne Rooney initially blocking his route.
Though Berbatov has also been exiled from the first team this season, the emergence of Javier Hernandez and more recently Danny Welbeck - combined with his own fitness problems - have kept Owen on the sidelines.
A scorer of 40 goals in 89 international games for England and the 2001 European Player of the Year, Owen's career has been on a downwards trajectory ever since his departure from Real Madrid for Newcastle in August 2005, following one season in the Spanish capital.
He suffered from extensive injury problems at St James' Park as he was restricted to 26 goals in 71 league games across four seasons, a far cry from the form that saw him score 118 times in the Premier League following his emergence from the Liverpool youth ranks.
Owen said he hoped to continue playing at the top level.
"I don't think I have lost the ability to score goals or play at a high level," Owen told Sky Sports television on Thursday.
"I certainly feel as if I can still play at the top level so we will wait to see where that is. If it's not in the Premier League it may be further afield.
"I don't think the Championship (second division) would be an option, to be totally honest."