"Unfortunately, we couldn't offer Pascal a competitive drive for next year," said Mercedes motorsport head Toto Wolff in a statement at the Singapore Grand Prix on Friday.
"In his best interests, we have therefore decided together with Pascal not to extend our agreement and to give him the best chance of securing an opportunity elsewhere that his talent merits."
Wehrlein raced for now-defunct Manor Racing in 2016 and then switching to Swiss-based Sauber for 2017.
Despite scoring all of Sauber's five points last year, he was not retained by a team under new management and with close links to Ferrari.
Most of the vacancies remaining in Formula One for next season are at teams, such as Red Bull-owned Toro Rosso, with no interest in taking Mercedes-contracted drivers.
Mercedes, who have four-times world champion Lewis Hamilton and Finland's Valtteri Bottas in their factory lineup, are also seeking seats for Frenchman Esteban Ocon and Britain's Formula Two leader George Russell.
"My contract with Mercedes expires at the end of the 2018 season and we have jointly decided not to continue further together," said Wehrlein, the 2015 German Touring Car (DTM) champion who is racing in that series again this year.
"I am looking for new challenges and opportunities, and am currently talking to other teams about a cockpit for next season."
(Reporting by Alan Baldwin in London, editing by Christian Radnedge)
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