"The time is right for me," Donovan, 32, told a news conference at his LA Galaxy team's headquarters after issuing a retirement statement on the club's website earlier in the day. "My gut just told me it was right, that it was the right time."
Donovan, who played primarily for the Galaxy and San Jose Earthquakes of MLS during a 16-year career that saw him become the face of the national team, said he had felt his desire for playing abate and that it was time to move on.
"The last few years I haven't had the same passion I had previously in my career," he said. "There's not that same passion, that same energy."
Donovan became the first American player to be well-known internationally despite playing almost all of his career in North America.
The forward scored 57 goals in 156 games for the US national team but was controversially left out of the 2014 World Cup squad earlier this year.
Donovan took a break from the game in early 2013 saying he was struggling to find motivation and needed some time away.
He said on Thursday he felt rejuvenated for a time, but came to realise he wanted to spend more time with his girlfriend, family and friends.
"It's very important in life to make decisions that are best for you, best for your friends and family and most important best for your happiness. This is the decision that is best for all of those things," said Donovan.
"I played here the majority of my career for two reasons," he said. "One, I wanted to be happy and my happiness always lay with being near and close to my family.
"And two, I wanted to help grow the game. I always thought it was much more important to be here doing that than to go be lost in the shuffle somewhere in Europe."
Donovan won five MLS titles, two with San Jose and three with the Galaxy, and also helped the US to four CONCACAF Gold Cup wins. He was also voted 'Best Young Player' in the 2002 World Cup finals where he helped the United States to a quarter-final place.
"Landon Donovan is one of the most significant figures in the history of soccer in the United States," said Galaxy head coach and general manager Bruce Arena.
"His influence on MLS and soccer in this country will continue to be felt for many years to come. We respect his decision to retire at the end of the season and look forward to competing for another MLS Cup and celebrating his outstanding career."
Donovan said he planned to stay involved in the sport, with an eye at least initially to working with young players.
"I absolutely want to work with kids," he said. "I spoke with (Galaxy president Chris) Klein extensively about working with the academy.
"That for me would be a really good way to come full circle."
In an 'open letter' to fans published by the Galaxy, Donovan said: "I feel incredibly blessed and lucky to have played a role in the remarkable growth of MLS and US Soccer during my playing career ... rest assured I will stay connected on many levels to the beautiful game.
"As we enter a transformative time for the sport, I will do everything I can to help the continued growth of soccer in the United States," he said.
The Galaxy play their final regular season game on October 25 at the Seattle Sounders, but the team, currently third in the Western Conference, are likely to feature in November's play-offs.
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- Landon Donovan
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