After confirming that Alex Albon (24) will continue for next year and beyond, Williams said it would announce its full 2023 driver line-up in due course.
In a tweet, Latifi said of his departure: "Honoured to have represented them for the last 3 years. A massive thanks to the whole team – it’s been an incredible journey and I’ve enjoyed every second of it."
In 55 races for the team, the Canadian scored seven points and has struggled for form this year, scoring no points in 2022 and has been far off the pace set by teammate Albon.
Williams' CEO Jost Capito racing said in a statement: "He is a great team player who has a great attitude towards his colleagues and work and is well liked and respected throughout the business.
"Our time together is now coming to an end, but I know he will put full effort in to maximise what we can do together for the remainder of this season. We wish him all the very best of luck for his future, both in and out of the cockpit."
Alongside his three seasons in F1, Latifi has also competed in Formula 2, Formula 3 and Porsche Carrera Cup.
The news of his departure formally opens up another seat in an unusually lively driver market, with no shortage of contenders.
Dutch driver Nyck de Vries (27) the 2021 Formula E champion, stood in for Albon at this month's Italian Grand Prix and outperformed Latifi throughout by starting eighth and finishing ninth on his debut.
De Vries tested this week with Renault-owned Alpine in Hungary, however, and has also had talks with Red Bull who may be willing to let Pierre Gasly (26) leave AlphaTauri for Alpine if they can secure a strong replacement.
Williams already have American Formula Two driver Logan Sargeant (21) in their driver academy and see him as an F1 prospect.
Sargeant will take part in Friday practice with Williams at next month's US Grand Prix in Austin, giving the Mercedes-powered team a good opportunity to assess his potential in the current car.
Australian Daniel Ricciardo (33), who leaves McLaren at the end of the year, is also looking for a seat while Mick Schumacher's (23) position at Haas is uncertain.
Former F1 racers Nico Hulkenberg (35) and Antonio Giovinazzi (35) are also potential contenders.
