"I spoke with the club yesterday and they told me they weren't going to keep me on because they were changing their philosophy for next year," the 36-year-old told the club website.
"I accept the decision because I knew my adventure at Villarreal would have to end one day."
Pires joined from Arsenal four years ago after winning two league titles in his six-year spell in England.
He had also played for Olympique Marseille and Metz and had winners medals from France's successes at the 1998 World Cup and Euro 2000.
He helped Villarreal achieve their highest ever league finish in 2008 when they were runners up behind champions Real Madrid, pushing Frank Rijkaard's Barcelona down into third.
"I am pleased to have been able to play in the Spanish league before retiring, and want to thank the club and the fans," Pires added.
"I don't know about my future yet because I have just finished talking to the club.
"Now, all I'm focused on his helping Villarreal and then I'll go on holiday when I'll have time to think about which team I could play for."
Pires, and Villarreal's long-serving defender Javi Venta, will both receive awards from the club at the local derby against Valencia at the Mestalla on Saturday.
Enjoy your first month for just £1 / $1 / €1
*Read 5 free articles per month without a subscription
Try your first month for just £1 / $1 / €1