The Colombian striker has been told that he will return to Monaco at the end of his loan deal and will begin the search for an alternative club.
Radamel Falcao has been told by Manchester United he will not be signed on a permanent deal.
Falcao, who has spent the season on loan at United from Monaco, will now begin the search for an alternative club.
Although United had agreed a fee of £43.2million for Falcao with Moncao, boss Louis van Gaal has decided against taking up the option.
Van Gaal told United's official website: "Falcao is a top professional and a good human being.
"On behalf of myself and everyone at the club I would like to wish him well for the future."
Falcao has scored just four times in 26 appearances for United this season, his poor goal return, £265,000-a-week wages and exorbitant transfer fee for a 29-year-old ultimately forcing the Reds to turn down the chance to sign him permanently.
United's decision not to take up the option to sign Falcao is no great surprise, with the Colombia striker waving to the Old Trafford crowd in an apparent farewell gesture when he came of in last weekend's 1-1 draw with Arsenal.
The Colombian was subsequently left out of United's 18-man squad for their last game of the season at Hull on Sunday.