"I think the time is right for me to hang up my Big Bash boots - juggling business, family and commentary commitments across two continents is not easy," Warne said.
"I've always loved the game but now it's time to observe. It's going to be a huge summer for Australian cricket. I'm really looking forward to it and will be closely following the Melbourne Stars," he added.
The 43-year-old, who quit Test cricket with 708 wickets in 2007, has been active in domestic Twenty20 leagues. He captained the unheralded Rajasthan Royals to the inaugural Indian Premier league (IPL) title in 2008.
His BBL stint last season was marred by a spat with Marlon Samuels, which led to a 4500-dollar fine and a one-match ban. Warne's bowling form was not impressive either and he captured merely four wickets in six BBL innings, conceding 7.95 runs per over.
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Melbourne Stars CEO Clint Cooper said the team respects Warne's decision to call it quits.
"With increasing business and family commitments across the world we fully understand Shane's decision to not play on this season," Cooper said.