The 34 year-old recently had surgery on his Achilles and will require three to six months rehabilitation before he knows if he'll be in a position to return to full fitness.
At that stage Vettori will make a decision on his playing future, but decided that in his current situation, it would be inappropriate to take a retainer contract.
"I am very focused on my recovery from my recent surgery and will be working hard to get back onto the playing field over the next six-month period,'' Vettori said in a statement.
"However, I feel that with my present injury situation it would be wrong for me to take a retainer contract. Given the time I'll need to spend out of the game with my recovery, and the level of uncertainty about when I may play again, it doesn't feel right that I take up a retainer contract this year.
"I will now focus on my rehabilitation in the coming months, with the overall goal of making a return to the cricket field during the summer months. Hopefully it goes well.''
NZC chief executive David White said: ''In the ICC Champions Trophy Dan showed the immense value that he still brings to the Black Caps side.
"Unfortunately Dan has indicated he's in a position where he feels uncomfortable taking a contract this season, as he builds towards making a return to the cricket field. As always, Dan has made his decision in the best interests of New Zealand Cricket and we appreciate his honesty and up-front approach.
"There's no doubting Dan's hunger to continue competing, and we hope to see him back playing for the Black Caps again when the time is right.''
