The decision has been dictated by finances after the Latics revealed they cannot afford to keep the 27-year-old who's current deal was set to expire in June.
It is no secret that had Diamond made another start it would have earned a new contract for 2012/13.
"In the economic climate and with the playing budget set to be cut, the club could not honour that," Diamond told the club's official website.
"It is disappointing as I have loved my season here and thought I would be staying.
"I leave Latics with some good memories and I want to stay in England having had a taste here."