Panik hit .235 with three homers and 27 RBIs in 103 games this season. In 643 career games with San Francisco, he hit .271 with 36 homers and 221 RBIs.
With the team turning second base over to Gennett, Panik became the odd man out on the roster.
"Nothing has driven me more than winning here in San Francisco," Panik said in a statement provided to multiple outlets. "I am forever grateful for the Giants taking the chance on me and allowing me to live out my life long dream. It is time for me to start the next chapter in my career. But in my heart I will always be a Giant."
Giants manager Bruce Bochy told reporters on Tuesday that telling Panik he had been designated was "one of the most difficult conversations I had in my life." The longtime manager said they both got a little emotional.
A rookie in 2014, Panik played a large role that postseason as the Giants beat the Kansas City Royals for their third World Series championship in five seasons. In Game 7, Panik started a key double play when he dove to snare an Eric Hosmer grounder, then flipped the ball with his glove to shortstop Brandon Crawford, who threw to first.
"We have been in a situation where we've been looking to get a little more production out of that second base spot,'' Giants president of baseball operations Farhan Zaidi said on Tuesday. "The last few days actually Joe kind of got in some games, pinch hit, got double-switched in... He's a winning ballplayer. It didn't seem fair to him to keep him in this role.''
The Associated Press contributed to this report.