The 37-year-old former Luton, Derby and Leicester forward rejoined the club where he began his professional career 18 years ago in July 2012, but has struggled to force his way into manager Colin Cooper's first-team squad this season.
A club statement read: "As the club continues to find ways to reduce its overhead costs, we can announce that a mutual agreement has been reached with striker Steve Howard for him to leave the club.
"Steve, whose contract was due to expire at the end of the season and who has been unable to secure a first-team place in recent months, has agreed a financial settlement which is to the benefit of the club to reduce its costs and acceptable to him.
"Such savings to the club are vital to ensure that we adhere to the Football League salary capping requirements and will also allow flexibility for bringing in loan players should they be needed."
Howard made over 160 appearances for Pools in his first spell at the club between 1995-99 and moved on to Northampton and then Luton, where he scored over 100 goals in just over 220 appearances.
Derby paid B£1million for him in 2006 and he then moved to east midlands rivals Leicester for a B£1.5million fee in early 2008.
"I would like to thank everyone at the club for their help and understanding," said Howard, who scored a total of 209 career goals in 783 appearances in all competitions.
"Everything has been done very amicably on both sides and hopefully I will get back to The Vic to watch some games in the future."