The 36-year-old joined the Rossoneri from Cesena way back in 1995 and has gone on to make more than 300 appearances for the Serie A giants, winning four Scudettos and two Champions League titles.
He was officially named club captain in 2009, replacing another long-serving player Paulo Maldini, but will leave the club this summer after 18 seasons at the club.
The news could alert West Ham, who have been linked with a move for the midfielder in recent weeks.
"I'm really sorry to say goodbye to Ambrosini. It's a decision that sees me emotionally involved", Milan chief executive Adriano Galliani told the club's official website.
"I'm sorry for Massimo that we announced the decision. We have been torn for many days. He's really sorry too, but at the end the age reasons overcame the emotions. "