The Sky Blues were hopeful of retaining Ninkovic on a new deal that included a future role in player and game development.
But the 37-year-old knocked back that offer, and sources have told ESPN that he will soon join crosstown rivals the Western Sydney Wanderers.
Ninkovic spent seven seasons at Sydney FC, winning three Championships, three Premierships and an FFA Cup along the way.
His hot form established himself as one of the league's greatest-ever players, with Ninkovic winning the Johnny Warren medal twice as the competition's best player.
"Milos is a legend of our club and we spent a number of weeks talking to him in the hope he would continue to play a role in our future," Sydney chief executive Adam Santo said.
"We were optimistic he would accept our offer to continue playing and remain at the club long term, where he would transition into full time employment.
"It has always been our intention for Milos to finish his playing career with Sydney FC.
"Despite our best efforts, Milos has decided to move on and we thank him for the major contribution he has made to our club."
Ninkovic thanked everyone for supporting him along his journey.
"I had the greatest times of my career at this club," he said. "I'm sad to be leaving but I've made this decision in the best interests of my family and I thank everyone for their support.
"I will always look back at my time in Sky Blue with immense happiness and pride at what we were able to achieve together.
"I will never forget these years and I will also have a huge fondness and a strong bond with our members and fans."
Ninkovic departs the Sky Blues having made 221 appearances in all competitions and scoring 41 goals.