He has taken just eight wickets in 12 matches in the Bangladesh Premier League Twenty20 tournament but had been expected to be a contracted player despite his poor form.
Bangladesh Cricket Board (BCB) president Nazmul Hassan told reporters that Mashrafe did not wish to continue as a contracted player. "We have accepted his proposal."
Mashrafe will lose a guaranteed monthly wage of at least $5,000 as well as lucrative sponsorship deals. The BCB usually put at least 15 players under contract, but has promised to increase the number.
The board has also raised Test match fees by 70 percent to $7,000 dollars a game as part of an accord after players went on strike last year. Bangladesh will organise a farewell match for Mashrafe if he wants it, the president added. The board offered a game against Zimbabwe as a testimonial last September, but he refused.