Ferrari have said the German was their first choice to partner Charles Leclerc but they wanted an answer by the end of April to ensure potential replacements were still available.
“My relationship with Scuderia Ferrari will finish at the end of 2020,” Vettel said in a statement on Tuesday. “In order to get the best possible results in this sport, it’s vital for all parties to work in perfect harmony.
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“The team and I have realised that there is no longer a common desire to stay together beyond the end of this season. Financial matters have played no part in this joint decision. That’s not the way I think when it comes to making certain choices and it never will be.
Team principal Mattia Binotto added: “This is a decision taken jointly by ourselves and Sebastian, one which both parties feel is for the best. It was not an easy decision to reach, given Sebastian’s worth as a driver and as a person.
“There was no specific reason that led to this decision, apart from the common and amicable belief that the time had come to go our separate ways in order to reach our respective objectives.
“Sebastian is already part of the Scuderia’s history, with his 14 Grands Prix wins making him the third most successful driver for the team, while he is also the one who has scored the most points with us.
“In our five years together, he has finished in the top three of the Drivers’ Championship three times, making a significant contribution to the team’s constant presence in the top three of the Constructors’ classification.
“On behalf of everyone at Ferrari, I want to thank Sebastian for his great professionalism and the human qualities he has displayed over these five years, during which we shared so many great moments.
Vettel joined Ferrari in 2015 after winning all his titles with Red Bull and dreaming of emulating his boyhood hero Michael Schumacher, who took five of his seven titles with the Maranello-based team.
The father of three told reporters last month that he could have a new deal done before the start of a season delayed by the COVID-19 pandemic.
Australian Daniel Ricciardo, at Renault, and McLaren’s Spaniard Carlos Sainz have both been mentioned in media reports as leading candidates to take one of the most coveted seats on the grid.
Both are also out of contract at the end of 2020.
Formula One has deferred to 2022 a major technical rule change planned for 2021, meaning teams will use the same cars next year as this.
Ferrari appeared to be behind Mercedes on pace in pre-season testing but have not been able to run their car in race conditions due to the March 15 Australian opener being cancelled.
The sport hopes to get going behind closed doors in Austria in July.