"Negotiations led to no agreement and Klose's contract running out on June 30, 2011 will not be extended," Bayern said in a brief statement.
The 32-year-old Germany international, who has scored 24 goals in 98 league games for Bayern since joining in 2007 from Werder Bremen, had wanted a two-year closed deal, while the club offered him a one-plus-one year contract.
"I had four very good and successful years in Munich and I want to thank Bayern. Playing for this club was something special," said the forward, who has been linked with a possible move to Spain.
During an injury-plagued season, Klose, who won the domestic 2008 and 2010 double with Bayern, lost his starting spot to eventual league top scorer Mario Gomez, and managed only one league goal.
He has been in fine form for the national team, scoring 61 goals in 109 appearances, and most recently played in their friendly win against Uruguay on May 29 where he picked up a rib injury that forced him to miss Germany's Euro 2012 qualifiers this month.
"We would have liked to extend but given the differences in the duration we could not agree," said Bayern CEO Karl-Heinz Rummenigge.
