Steven Gerrard has told Liverpool he wants to leave Anfield after turning down a new £100,000-a-week contract.
The 25-year-old captain made his move after Liverpool rejected a £32m bid from Premiership champions Chelsea.
"Steven has told us he will not accept our offer of an improved and extended contract because he wants to leave," a Liverpool club statement read.
Gerrard also issued a statement which said: "This has been the hardest decision I have ever had to make."
He added: "I fully intended to sign a new contract after the Champions League final, but the events of the past five to six weeks have changed all that.
"I have too much respect for the club and people at it to get involved in a slagging match."
Reports from Anfield suggest the club will not allow Gerrard to leave until he has submitted a formal transfer request.
Gerrard delivered the news to Liverpool chief executive Rick Parry via his agent, Struan Marshall.
And Parry reflected: "The club has to be bigger than any individual. It's the ups and downs of football.
"Now we have to move on. We have done our best, but he has made it clear he wants to go and I think it looks pretty final."
The Anfield chief was left disappointed after Gerrard's decision to leave, just a year after persuading the midfielder that the club could match his ambitions.
"We sat down with him last summer and we understood his frustrations - it was all to do with perceived lack of success.
"We said 'stick with it and see what we achieve', and we thought we achieved quite a lot. What better sign is there that the club is going in the right direction (than winning the Champions League)?
"He wanted success, and presumably felt he would get success elsewhere - it is our job to prove him wrong.
"I did say to him 'think of Istanbul, think of the fans'."
Gerrard has two years left on his current contract which is worth a reported £60,000 per week.
He was in talks with the club to extend that deal by a further two years until Monday when his agent announced that negotiations were ending and were "unlikely to be re-opened".
That apparently came because Gerrard felt his boyhood club had not placed enough of a priority on the talks.
Later on Monday Gerrard had a meeting with chief executive Parry and chairman David Moores, who made a last-ditch offer of £100,000-per-week to keep their captain at Anfield.
They were told he would go away and sleep on the deal - but he told Parry on Tuesday he wanted to leave.
By then Chelsea had already made their offer - which is now set to become only the start of a bidding war between the London club and Spanish giants Real Madrid.
Madrid confirmed their interest on Tuesday but said he would have to put in an official transfer request before they got involved.
Gerrard's confirmation that he did indeed want out would be sure to bring the Bernabeu club to the negotiating table.
The previous British record buy was set at £29.1m when Manchester United bought Rio Ferdinand from Leeds in 2002.
Parry added: "I don't imagine it is just going to be one club bidding for Gerrard.
"It is only one day, although one day makes a big difference in negotiations, as we have seen."