Carmelo Anthony averaged 13.4 points with the Rockets.
There are no immediate plans to place Anthony on waivers and he will remain on the roster, but not rejoin the team. He's missed the last three games with what the team has listed as illness.
General manager Daryl Morey issued a statement explaining how the team came to this decision.
"After much internal discussion, the Rockets will be parting ways with Carmelo Anthony and we are working toward a resolution," Morey said in the statement. "Carmelo had a tremendous approach during his time with the Rockets and accepted every role head coach Mike D’Antoni gave him. The fit we envisioned when Carmelo chose to sign with the Rockets has not materialized, therefore we thought it was best to move on as any other outcome would have been unfair to him."
Anthony has a Dec. 15 trade restriction because he was signed this summer.
Anthony played just 10 games with the Rockets and averaged just 13.4 points since joining the team this past offseason.
The 10-time All-Star is in his 16th NBA season after being drafted with the No. 3 pick in 2003 out of Syracuse.
After spending last season with the Oklahoma City Thunder, Anthony was traded to the Atlanta Hawks in a three-team deal before getting waived by the Hawks, clearing the way for him to go to Houston.
In addition to the Rockets, Anthony was also courted by the Miami Heat this past offseason. On Monday, Anthony's representatives reportedly spoke with front offices around the league to discuss potential landing spots for when he leaves the Rockets.
Anthony started his career with the Denver Nuggets before getting traded to the New York Knicks in 2011. The Knicks sent him to the Thunder prior to the start of last season. He is averaging 24 points per game for his career.
Houston is 6-7 on the season and has been 2-1 in games without Anthony.