But Blues director of rugby Dai Young, himself a Lions legend, has hinted Williams could still have a future with the region and be handed a new contract.
"I wouldn't write off that he's not going to be here for definite next year," said Young.
"It has been well-documented that Martyn is not here next year. It certainly hasn't come from my mouth.
"What we have said: we have to get down to a sensible budget. We can't spend more than obviously we can afford and at the moment the whole squad is being reviewed.
"Players coming out of contract - Martyn and the like - are under more pressure obviously because you have got to find more money to re-sign them.
"But it is something we are working through over the next two to three weeks. Martyn is fully in the picture.
"It's something we have got to do: review the whole squad, see where we are, make sure we have got the right areas plugged for next year and try to maintain as much quality and experience as we can."
Williams, popularly known as 'Nugget', has toured Australia, New Zealand and South Africa with the Lions. He has made 17 appearances in the famous red jersey, including three Test appearances, while he has also touched down twice.