The technical specialist finished fourth in the slalom at the 2010 Winter Games in Vancouver and sixth in the giant slalom at the Sochi Olympics four years ago.
The winner of six world championship medals -- two silver and four bronze -- Pietilae-Holmner has suffered a chronic back problem that ruled her out of competing on the World Cup circuit this season.
Her third and last World Cup victory was a slalom on home snow in Are in December 2014.
"She was patient with her recovery and made persistent efforts to get back to form, but she ultimately decided that her limitations are too severe to compete again at the highest level," the International Ski Federation said on Wednesday.
The Pyeongchang Olympics start on Feb. 9.
(Reporting by Alan Baldwin in London, editing by Ken Ferris)
