BMW Sauber parted company with Jacques Villeneuve on Monday after replacing the 1997 Formula One world champion with Poland's Robert Kubica in Sunday's Hungarian Grand Prix.
The team said that the Canadian would not drive for them again this season, a decision that looks sure to end the 35-year-old's Grand Prix career after 163 races and 11 victories.
"Following discussions last week, Jacques Villeneuve and the BMW Sauber F1 team agreed to terminate their current contract with immediate effect five races ahead of schedule," the statement said.
Villeneuve said the team had told him last week that they wanted to try out Kubica and could offer him no assurances of a drive after Hungary.
"This is really disappointing as I was looking forward to working with BMW on longer terms -- going into next season capitalising on our common experiences," he said on his personal web site.
"I will now have more time to concentrate on future projects.
BMW team boss Mario Theissen thanked Villeneuve for his contribution in the German carmaker's first season since they bought Sauber.
"Jacques has performed well for us this year, scoring the team's first Grand Prix points in Malaysia," he said.
"However after Jacques's accident in the Hockenheim race, the team decided to review its options for next year, including assessing Robert Kubica in a race environment," added Theissen.
He said this "naturally impacted Jacques' position for the remainder of this season" and BMW fully understood that "it is difficult for Jacques to maintain his natural level of commitment in circumstances of uncertainty."
Villeneuve crashed heavily in his last race, the German Grand Prix at Hockenheim eight days ago. The team said last week that he had told them he had a headache and could not race in Hungary.
Few in Formula One, a sport awash with rumour and speculation, believed that the driver was really unwell and suspected that he would not be seen in a Grand Prix car again.
The Canadian has not won a race since his championship season with Williams and his last podium finish was third place with BAR, a team he joined from the outset in 1999, at Hockenheim in 2001.
BMW were distinctly lukewarm about taking him on from this season but in the end respected the two-year contract he signed with Sauber in 2005.
Kubica, Poland's first Formula One driver, finished seventh on his debut at a wet Hungaroring before he was disqualified because his car was two kilos underweight at the finish due to excessive tyre wear.
Theissen was full of praise for the 21-year-old and hinted strongly that he would continue in the race seat.
"In my view it was a perfect first race," he told Reuters before the stewards' acted.
"In the beginning it was a bit slippery for him but then he dealt very well with the difficult conditions.
"There's not much more you can ask from a new guy. The best things is that he himself is disappointed, so that's a good promise for the future."