The decision means Baltimore will forego paying the full $17.5 million option on Markakis, instead paying him a $2 million buyout.
Baltimore has until midnight on Monday to negotiate a new deal with the outfielder, at which point he would become a free agent.
According to Roch Kubatko of MASNsports.com, the team will continue negotiations with Markakis' agent over a multi-year deal, leaving open the possibility he could return to the Orioles with a lower salary.
Markakis' family wants to stay in Baltimore and the Orioles want to keep him on the roster, Kubatko writes.
"Nick is a dependable player and the Orioles would like to continue their relationship with him," executive vice president Dan Duquette said in a text message.
Markakis, 30, has spent his entire nine-year career with the Orioles. He was drafted seventh in 2003 and joined the team in 2006 after a stint in the minor leagues.
In 155 games this year, he hit .276, with a .342 on-base-percentage and a .386 slugging percentage. He also hit 14 home runs and had 50 RBI.
He has played 155 games in seven of his nine years in Baltimore, averaging 183 hits per season over that seven-year period.
Markakis is a career .290 hitter, with 141 home runs and 658 RBI. He signed a six-year, $66.1 million extension in 2009, a deal which paid him $15 million this past season.
The Orioles currently have 32 players on their 40-man roster.