After a stellar career in which he also represented Manchester United, Inter Milan and Marseille, Chilean great Sanchez had returned to Udinese for a second spell a year ago.
"Udinese and Alexis Sanchez's paths are separating here. The club and the white and blacks legend have reached an agreement to end his contract," Udinese said in a statement.
"Alexis will always remain our 'Amazing Kid'," the club added in reference to Sanchez's nickname.
Sanchez first joined Udinese when he left South America as a fresh-faced teenager in 2008.
He went on to win La Liga with Barca in 2013, Serie A with Inter Milan in 2021 and 2024, and the FA Cup with Arsenal in 2015 and 2017.
But the highlight of his career was leading Chile to back-to-back Copa America successes in 2015 and 2016, both times beating Lionel Messi and Argentina in the final.
He has scored a total of 220 goals in 796 matches in his club career.