The 33-year-old was not considered as a replacement when India lost opener Shikhar Dhawan and Vijay Shankar to injuries, with Rishabh Pant and Mayank Agarwal called up instead.
"I have come to the decision to step away from the sport and retire from all forms and levels of the game," Rayudu said.
"It has been a wonderful journey of playing the sport and learning from every up and down it brought upon for the last 25 years at various different levels."
Rayudu, who played over 200 Twenty20 matches, scored over 4,500 runs including one century and 24 fifties. He played 55 ODIs, amassing 1,694 runs with three centuries at an average of 47.
(Reporting by Rohith Nair in Bengaluru, editing by Ed Osmond)
