The 40-year-old is yet to feature for new Palace manager Tony Pulis, who took charge last month, and has held talks with the Welshman to confirm his exit next month in search of regular first-team action in what he has said will be the final season of his career.
Phillips is assured of a place in Palace folklore after scoring the only goal from the penalty spot in last season's Championship play-off final against Watford.
But the former Wolves, West Brom, Birmingham City and Sunderland forward knows that it is the right time to move on.
Phillips, who joined Palace on loan from Blackpool last term before penning a one-year deal, confirmed to talkSPORT: "I've had a chat with the manager and I will be leaving in January.
"I've been travelling for nearly two and a half years and I want to find a club nearer home and I want to be playing football for the last three or four months of my career.
"I've had a chat with the manager and he's fine with that.
"The goal at Wembley was the last one I scored and I want that feeling back. I will leave on great terms and while I'm still here I'll be giving everything if called upon.
"I haven't got another club lined up, but I'm hoping I'll get something sorted out pretty quickly."
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