In announcing the 23-year-old's departure, Gloucester have ended months of speculation about his playing future.
Burns' destination has not been yet been announced, but Gloucester's Aviva Premiership rivals Leicester are firm favourites for his signature.
Burns, who made his Gloucester debut in 2009 and was capped by England three years later, is expected to fill the vacancy at Tigers left by France-bound Toby Flood.
In a statement, Gloucester said: "After weeks of speculation, Gloucester Rugby can confirm today that fly-half Freddie Burns will leave the club at the end of the season.
"The future of the 23-year-old, who made his senior bow in Andy Hazell's testimonial match ahead of the 2009-10 season and who is out of contract at the end of the current season, has been the subject of intense media attention in recent weeks.
"Discussions between Burns and the club over a new contract have been ongoing for some time now.
"However, agreement has not been reached and, by mutual consent, both parties have started to pursue alternative options."
Burns started Gloucester's Heineken Cup defeat against Munster at Kingsholm three days ago, but his exit from the west country club has come as no surprise.
"I've had a lot of things to consider regarding my future in recent months, and it's not been easy," Burns said.
"But I am still a Gloucester player and will be giving it 100 per cent, as I always have done, whenever I pull on the shirt.
"Gloucester have been incredibly supportive, they have been ever since I first joined the club. I have so many people to be grateful to.
"Whatever happens in the future, it all started here for me and I will always be thankful for that."
Gloucester rugby director Nigel Davies confirmed that "lengthy dialogue" had taken place between the club and Burns surrounding his future.
"A number of players are out of contract at the end of the season, and I've been pleased to date with those who have re-signed, including the likes of Sione Kalamafoni, Henry Trinder and Billy Twelvetrees," Davies said.
"Attention has naturally turned to Freddie Burns' situation and, despite lengthy dialogue, we have decided to part company.
"Therefore, we feel that it is important to clarify the situation.
"Doubtless, a statement on Freddie's future club will be made in due course. However, in terms of Gloucester Rugby, we know where we stand and we will move forward accordingly.
"As always, any statement regarding player signings will made via official channels at the appropriate time.
"Freddie has made a tremendous contribution to Gloucester Rugby and, when he does leave us at the end of the season, everyone at the club will wish him well.
"Until that time however, I know that Freddie will be fully committed to Gloucester Rugby and that he will be determined to help us be as successful as possible this season."
Gloucester currently lie ninth in the Premiership, while a 20-7 loss to Munster ended their distant hopes of reaching this season's Heineken Cup quarter-finals.
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- Gloucester Rugby
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