"Sigi Schmid has formally declined our last contract offer and will not be returning as head coach of the Columbus Crew. Sigi was the ideal person to turn around our competitive program and create a championship mentality within our club," the club said in a statement.
"As a result, we are well positioned moving forward and toward continued success. We respect his desire to seek the next challenge and wish him nothing but the best," the statement added.
Schmid, 55, who moved to the United States in 1962, spent most of his career working as a coach at the University of California, Los Angeles (UCLA) where he had been a player.
After a spell as coach of the U.S Under-20 team he took charge of the L.A Galaxy in 1999 before returning to the Under-20 team in 2005.
A year later he took over at the Crew and this season he guided them to their first MLS Cup triumph and won the 2008 Coach of the Year award.
Media reports have linked Schmid with the 2009 MLS expansion team, the Seattle Sounders. The Seattle Times said the coach met with club's owners last week.
Schmid's assistant at the Crew, former Poland and Everton winger Robert Warzycha, is the early favourite to take the vacant position in Columbus.
