Latifi made his F1 debut with Williams at the start of the 2020 season on a three-year contract, but struggled to match teammates George Russell and Alex Albon for form during his time at the team.
The Canadian's departure has been widely expected for a number of months, but Williams confirmed the news on Friday, revealing his contract will not be extended.
Williams said it will announce Latifi's replacement as Albon's teammate "in due course."
"I would like to take this opportunity to thank everyone at Williams Racing - all the people back at the factory and those I work with trackside - for the last three years," said Latifi in a statement.
"My initial F1 debut was postponed due to the pandemic but we eventually got going in Austria and, although we have not achieved the results together we hoped we would, it's still been a fantastic journey.
"Getting those first points in Hungary last year was a moment I'll never forget, and I will move onto the next chapter of my career with special memories of my time with this dedicated team. I know none of us will stop putting in every effort until the end of the season."
Latifi failed to score any points through his first full season at Williams as the team struggled at the back of the grid. His first F1 score arrived in Hungary last year when he finished seventh, helping Williams score its first points for over two years.
But following his crash in last year's Abu Dhabi season finale and the impact of the subsequent safety car on the championship, Latifi was subject to death threats and significant abuse online, impacting him mentally.
Latifi has failed to finish a race any higher than 12th so far this season, while both Albon and Nyck de Vries - who deputised for Albon at Monza - have managed to score points for Williams.
Williams F1 boss Jost Capito paid tribute to Latifi as "a great team player who has a great attitude towards his colleagues and work and is well-liked and respected throughout the business."
"Our time together is now coming to an end, but I know he will put full effort in to maximise what we can do together for the remainder of this season," said Capito.
"We wish him all the very best of luck for his future, both in and out of the cockpit."
Latifi said at Zandvoort he would not consider any other racing options for 2023 until his future with Williams was defined, but chances of staying on the F1 grid seem remote.
Williams is known to be considering de Vries for a full-time seat in 2023, but the team faces competition from both Alpine and AlphaTauri for the Dutchman's signature.
Another option for Williams is one of its academy drivers, Logan Sargeant, who currently races in Formula 2 and needs a top-five finish to secure a superlicence.