The 30-year-old, who has played 150 senior games for the club, was part of the National Division One promotion winning team of 2003/04 and has been instrumental in Warriors development in the top-flight.
Currently enjoying his eleventh top-flight year, after previous spells with Saracens and Harlequins, Powell has led the side in the absence of Pat Sanderson.
Powell, who is now set for an emotional final appearance at Sixways Stadium against London Irish this Saturday, will now join the backroom staff at Warriors after being appointed Skills Coach and Attack Analyst from next season.
Director of Rugby Mike Ruddock said: "Matt Powell has been a great servant for Warriors and been a great ambassador since he joined in 2003.
"Matt has demonstrated his Premiership qualities over a number of years with the likes of Harlequins, Saracens and the Warriors. He was been instrumental in assisting the Warriors to achieve Guinness Premiership status and also to stay there during his time as a player.
"Since my time at the club I've encouraged my senior players to have a degree of input into the way we play and the tactics that we use for each game. Since we formed this tactical group, Matt's rugby knowledge has come to the forefront of my attention to such a degree that I believe he will make a fantastic coach and over the last six months, as such, I have actively encouraged him to consider this route. Matt has a sharp rugby brain and is very well organised and has excellent communication skills.
"My desire to create a back room staff, that includes ex-players, and a team that includes a lot of home-grown talent through our Academy means I have a desire to create the 'Worcester Way'. That includes promoting ex-players onto my back room staff.
"This is something that I did in Swansea and Leinster and it is something that in football, for example, Liverpool FC have pioneered and years gone by. Leicester Tigers, in rugby terms, have definitely shown that this is a very strong way of improving the brand and the identity of the team.
"Matt's role will be to assist with skills coaching, particularly with the number nines, but also with analysis of opposing teams with the directive to look at the way we attack each one of our opponents in the league and all other competitions."
Powell admitted the time was right for him to hang up his boots and he was now looking forward to his next challenge at Sixways Stadium.
"I think I decided a few years ago that I didn't want to play into my late thirties, I wanted to stop when I was still playing to a decent standard of rugby rather than try carry on playing and drop down leagues," he said.
"I want to be happy with my contribution and move on into a new career. I spoke to Cecil Duckworth last summer about potentially stopping at the end of this year so I have had it in my mind for a while now that it would end.
"It feels the right time. It has been a hard decision to make. I've been playing for 12 years and playing in the Guinness Premiership for 11 years. But I am ready for something a little different.
"I'm not one of those players who believed he was possessed with raw talent. I rely on my work ethic and working hard on my game to compensate for that.
"As we move on as a club and the Guinness Premiership gets tougher and tougher, I just think if I am to compete at this level it is going to be tough.
"There are young guys coming through and as a club moving forward I don't think I am the answer as first choice now. If I'm not first choice I would rather contribute in other ways rather than sit on the bench or delay someone's development, such as Jonny Arr.
"The last two years have been very exciting for me with Mike Ruddock coming in. He has a huge amount of ambition and all the players are so excited about where the club wants to go and the brand and style of rugby we are going for. Now I am looking forward to my next challenge with Warriors."
MATT POWELL PROFILE:
Name: Matthew Powell
D.O.B: 8th May 1978
Born: Abergavenny, Wales
Height: 1.78m (5' 10")
Weight: 88kg (13st 11lb)
Position: Scrum Half
Clubs: 1997-2000 Saracens
GP Appearances: 19
GP Appearances: 40
2003-2009 Worcester Warriors
GP Appearances: 84
Total Career GP Appearances: 143
Total Appearances for Worcester (all competitions): 150
Guinness Premiership: 84
EDF Energy Cup: 8
European Challenge Cup: 23
Powergen Cup: 7
European Shield: 4
National Division One: 24
First GP Appearance: Saracens vs Leicester - April 25th 1998