Powell was part of the National Division One promotion winning team of 2003/04 and went on to make 153 senior appearances for the club before retiring in 2009 and joining the backroom team.
Relegation from the Premiership has seen a major review of the entire coaching structure at Warriors and Powell has not been part of the current pre-season preparations.
All parties have now agreed that the time is right to move forward with a new-look coaching set-up as the club bids for immediate return to the English top-flight and thereafter Premiership success.
Chairman Cecil Duckworth OBE said: "I would like to thank Matt for his dedication and tireless work for the club over the last seven years.
"He made an outstanding contribution to the club as a player, notably as a key member of the squad that won us promotion to the Premiership, and we also thank him for his professional work as part of the backroom team last season. We wish him success in the future."
Matt Powell said on leaving the club: "My last seven years at Worcester have been the most enjoyable of my career.
"From playing, coaching and organising events like the networking breakfast last year, I've gained such a wide variety of experience at Worcester.
"I'd like to thank all the supporters and sponsors with whom I've developed close relationships and friendships with over the years.
"Having been coached by Hilly at Harlequins, I've no doubt that Worcester will bounce straight back up."