The decision has put Europe' top clubs on red alert and a number of big-spending sides in France are said to be interested in the 25-year-old, with Perpignan having been linked with the 2008 Grand Slam winner in the past.
The news will be a bitter pill to swallow for the Ospreys just days after Gavin Henson confirmed his return from a self-imposed absence by signing for Saracens.
"Afterall of the recent speculation regarding my rugby playing future, I informed the Ospreys this morning that I won't be signing a new contract for next season (2011/12)," said Hook.
"I felt it was only fair to the Ospreys to let them know of my intentions to leave well in advance of January 2011 so that they can find a replacement.
"The Ospreys have been vital to my development as a professional rugby player and I can't thank them enough for everything they have done for me.
"My decision to leave is no reflection on the Ospreys; the board and the management team have given me an incredible support network from the time I signed my first professional contract to now.
"I will make a decision on where my future lies in February 2011 and I won't be making any further comment on this matter until this time."
The Ospreys have confirmed the departure of the Lion at the end of the season and thanked him for his services to the region.
"We have been in negotiations with James for a number of months and had set him a deadline of today for informing us of his intentions in order to allow us to plan as a business for the future," read a statement released by the Ospreys.
"By advising us at this early stage, it allows us to look towards the 2011/12 season and beyond with a degree of certainty when it comes to player recruitment.
"James has been a tremendous servant to the Ospreys since making his debut for the region in 2004, representing his home region with pride.
"While we now know that he will no longer be an Osprey next season, we are confident that he will continue to serve the region well between now and the end of May and we hope that he will return to represent the Ospreys at some point in the future."
The news will not sit well with former Lions coach Warren Gatland. Wales are due to kick-off their autumn series on Saturday while the Kiwi has made no secret of the fact that he wants his Welsh stars playing in the Principality.
He has cited the fact that Andy Powell, Dwayne Peel and Nicky Robinson ply their trade in England as a factor in his decision not to select them in his autumn party, although Lions powerhouse Powell has since linked up with the squad.