Matthaus to leave Netanya in summer
Matthaus, who captained West Germany to the World Cup in 1990 and won a record 150 caps, had signed a two-year contract with the Israeli outfit but agreed to end it a year early.
Netanya's website said club owner Daniel Jammer told Matthaus that "because of a lack of infrastructure and facilities I am unable to upgrade the club next season" and so the coach had asked to leave.
Matthaus has previously coached Rapid Vienna, Partizan Belgrade, Hungary, Brazilian side Atletico Paranaense and Austria's FC Salzburg.
Netanya continue to play at a cramped ground in the heart of the Mediterranean coastal city north of Tel Aviv. A planned move to a modern stadium has been delayed repeatedly due to disputes over funding its construction.
The club were league runners up in the past two seasons but inconsistent form has left them fourth in the table, nine behind leaders Maccabi Haifa with five matches left.
Netanya play Maccabi Haifa in the semi-finals of the State Cup next week.