After four years at Stamford Bridge, Ballack had hoped to stick with the London club for another two seasons. But his agent Michael Becker said Chelsea were willing to only offer him another 12 months on his contract ending July 1.
"I want to play for another two years at the highest level," said the 33-year-old Ballack on Wednesday on his website.
It is still unclear where Ballack will go, however, there is said to be interest from Bundesliga outfit Schalke 04 and some cash-rich clubs in Dubai.
Ballack managed to establish himself after a shaky start at the Premier League club, though he would never mirror his dominating role once held at Bayern Munich. In 167 appearances for Chelsea, he scored 26 goals.
He also won the FA Cup three times in 2007, 2009 and finally this year only a week after his team lifted the Premier League trophy, making Ballack the only German in history to win the double in England. The Champions League title, however, evaded him due to a loss in the penalty shootout with Manchester United in 2008's final in Moscow.
The German midfielder was ruled out of the World Cup this summer due to injury after a nasty foul by Portsmouth's Kevin-Prince Boateng in the FA Cup final last month, but he has yet to retire from international football.
"It was sad that on the day Ballack became the first German to win the Double in England, he was forced off in the Cup Final with ankle ligament damage that would force a withdrawal from the World Cup," the Chelsea website lamented on Wednesday.
"All at the club would like to place on record our thanks for his service and wish him luck for the future."