The development comes on the eve of the IPL-10 auction, to be held tomorrow in Bangalore.
"The Royal Challengers Bangalore and fast bowler Mitchell Starc have mutually decided to discontinue their association ahead of the upcoming season of VIVO Indian Premier League 2017 in accordance with Regulation 41 of the IPL Player Regulations," the BCCI said in a release.
"The Bangalore franchise will go into tomorrow's VIVO IPL Player Auction 2017 with an additional purse of INR 5 Crore and an additional slot for overseas player," the Cricket Board added.
The left-arm pace bowler was part of the RCB franchise since 2014 but played only two tournaments for them. He missed the entire 2016 season because he was recovering from a foot fracture.
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In 2014, he took 14 at 28.71 apiece, with an economy of 7.49, and in 2015 he claimed 20 wickets at 14.55 apiece with an economy of 6.76.
(REOPENS SPD 10)
Starc said the pullout would allow him some space in what promises to be a busy season.
"At this point in time after a long summer and with a big tour of India still ahead I think it is in my best interests, both physically and mentally, for me to have a break, spend time with my family and take the opportunity to work on getting back to full fitness," he said.
Cricket Australia Executive General Manager Pat Howard said Starc would benefit him in a hectic season.
"Mitch has had a very big summer, bowling a high number of balls, and has managed extremely well considering the less than ideal preparation he had leading into the season with his left leg injury.
"He still has a large workload to get through in the next six months with four Tests against India and then the ICC Champions Trophy after the player leave period in May," he said in a statement.