The 33-year-old will now be a free agent and is expected to enter the IPL auction on February.
The Daredevils freed up their entire squad by also releasing big name stars such as David Warner and Virender Sehwag.
The move provokes further questions over what Pietersen's next move will be and over what England team director Flower will do next.
Reports this week suggested that Flower wanted to call time on the 33-year-old's international days, with the suggestion in some quarters that the Zimbabwean had delivered a 'him or me' ultimatum.
Flower responded quickly to dismiss those claims as "totally inaccurate" and called for a "calm and logical" assessment in the wake of the Ashes whitewash before verdicts were reached on any player.
Conspicuous by its absence in the carefully-worded statement was any kind of public support - or even mention - of Pietersen.
If Pietersen is still a part of Flower's plan then a decision to skip at least part of the IPL, and its riches, would be an obvious way for him to prove his England commitment and prepare for the domestic summer.
Pietersen has twice this week taken to Twitter to voice his "strong desire" to remain an England player.
At present the agreed cut-off date for players to return is May 13, which would give them seven days to prepare in home conditions for the one-day international series against Sri Lanka.
But after the fall-out of the Ashes - and Flower's desire to begin a "new era" - there is reason to suggest those England players who do go to the IPL might benefit from returning earlier to play in the LV= County Championship - which begins on April 6.
It is a notion Eoin Morgan has indicated he could consider as he looks to revive his own Test ambitions.
Morgan has previously opted to play in the IPL, instead of remaining in England for the start of the summer, and has seen himself fall down the Test pecking order.
With places now seemingly up for grabs again in the five-day arena Morgan - speaking ahead of the first ODI against Australia in Melbourne on Sunday - admitted forcing his way back into the longer format after two years away was a driving motivation.
"Yeah, absolutely. I always have and I always will do (strive to play Test cricket)," he said.
Asked if he would be willing to forgo the IPL to strengthen his claim, he added: "It's always been that the national selection have come before domestic and that is still the case."
James Anderson, Stuart Broad and rising star Ben Stokes are thought to be receptive to that idea of returning early, while Jos Buttler is another with Test ambitions who could be snapped up in next month's IPL auction.
Pietersen is, however, both a bigger draw and a bigger advocate of the IPL than his colleagues.
He has spoken passionately about the sporting benefits and is immensely popular in India, making it highly unlikely he would miss it in favour of some early-season four-day outings with Surrey.
- Sports & Recreation