"It is time to go and do something else," the 35-year-old Finn was quoted as saying on the International Ski Federation website (www.fisalpine.com) on Thursday.
Palander, who was world slalom champion in 1999, underwent knee surgery after crashing in the opening giant slalom of last season.
He said a lack of motivation, rather than fitness problems, had prompted him to quit ahead of the new season which starts on October 27.
"It would be too easy to say that I quit because the body cannot take it any more but that is not the reason," said Palander.
"I am in shape enough physically to say that if I had the motivation, fire, will and faith to make it back to the top, I would have continued."
Palander, Finland's first world champion, won 14 World Cup races during a career stretching back to 1996 and took the trophy for the best slalom racer of the 2002-03 season.