"We have worked hard to extend Rafa's contract over a significant period of time, however it has not been - and will not be - possible to reach an agreement with Rafa and his representatives," Newcastle said in a statement.
Benitez's contract is due to expire on June 30 after two and a half seasons at the helm of the club, reports Efe news.
"Rafa's coaching staff, Paco de Míguel Moreno, Antonio Gómez Pérez and Mikel Antia, will also leave the club on 30th June," the club added.
Benitez joined Newcastle after a seven-month stint at Real Madrid in 2016.
He was landed with a sinking ship in March 2016 as the team from northeast England struggled to leave 19th place, the second last place in the table.
The team went down in the Championship but under the continued management of Benitez came straight back up to the top-flight, where it finished 10th that season.
The team finished 13th in its most recent campaign.
During his period in charge, Newcastle played 146 matches, with a ratio of 62 wins to 31 draws and 53 defeats, scoring 209 goals and conceding 171.
"We would like to thank Rafa and his coaching team for their efforts over the last three years and their significant contribution to what has been collectively achieved," the club added in the statement.
( With inputs from IANS )