West, an 11-year veteran, had a $12.6 million option in his contract for the 2015-16 season.
The bruising forward averaged 11.7 points and 6.8 rebounds per game for the Pacers last season.
West's per-game scoring was its lowest since his second season in the league, but he helped Indiana field a successful second unit.
Pacers center Roy Hibbert is expected to take until Monday to decide whether to pick up his player option.
ESPN.com's Ian Begley and Marc Stein contributed to this report