The 31-year-old Frenchman had joined from Sunderland during the close season on a two-year deal but played for only 27 minutes in a 0-0 draw against Olympique Marseille last month.
"AS Saint-Etienne and Steed Malbranque have reached an amicable agreement to terminate their contract," Saint-Etienne said in a statement on their website.
Last week, rumours on social networking site Twitter suggested Belgian-born Malbranque, a French citizen, had quit football because his son was seriously ill.
"Saint-Etienne and the player wish to firmly deny the groundless, sometimes hurtful rumours linking Steed's decision to his health or that of his children," the statement read.
Malbranque started his professional career at Olympique Lyon in 1997 before joining Fulham in 2001, staying five years at Craven Cottage.
He then played for Tottenham Hotspur (2006-08) and Sunderland (2008-11).
