Flutie, 42, now becomes an unrestricted free agent and able to sign with any other franchise.
Flutie may look at the possibility of going to the New England Patriots as a backup. Other possibilities include going into broadcasting or retiring.
"I owe my great time in San Diego to John (Butler) and A.J. (Smith) who brought me there. A.J. and I still have a great relationship. There are no hard feelings ... it's a mutual parting," Flutie said. "It's the right thing for me. It opens up other doors of opportunity for me if I want. Rather than retiring outright, I wanted to be released so that I could pursue other things if they arise."
The 1984 Heisman Trophy winner while at Boston College, Flutie is best known for his last-gasp touchdown pass to Gerard Phelan in 1984. The 48-yard pass, as time expired, allowed Boston College to upset the University of Miami, 47-45. It remains one of the most celebrated plays in college football history.
The play made Flutie a legend and his competitiveness and ability to overcome a size disadvantage only added to his popularity. At the NFL level, however, Flutie did not live up to his fabled college career.
In stints with the Chicago Bears (1986-87), Patriots (1987-89), Buffalo Bills (1998-2000) and Chargers (2001-2004), he appeared in 87 games and started in 66 of them. He completed 1,172-of-2,141 passes for 14,686 yards, with 86 touchdown passes and 68 interceptions.
Only three times in his career did Flutie start 10 or more games in a season. The last of those was in 2001, when he started all 16 games for San Diego. In the last three seasons, Flutie started just six games and registered only 216 attempts. The Chargers' quarterback depth chart includes starter Drew Brees, designated as the team's "franchise" player," and 2004 first-round draft choice Philip Rivers.
Most of Flutie's success as a professional occurred in the Canadian Football League, where he earned the league's equivalent of the most valuable player award six times and led his teams to three championships. He played with seasons, 1990-97, in the CFL.
Len Pasquarelli is a senior writer for ESPN.com. ESPN.com senior writer John Clayton also contributed to this report.