The 35-year-old quarterback missed the entire 2011 NFL season after having neck surgery last September and was due a $28 million bonus if the club had decided to keep him.
"Circumstance was the third guy in talks with us all the time," Manning said during a news conference at the team's practice facility in Indianapolis about his discussions with Colts owner Jim Irsay. "It wasn't his decision, it wasn't my decision. Circumstances kind of dictated it. It's not what either of us wanted."
Following an NFL-worst 2-14 record last season that landed the Colts the top pick in next month's draft, where quarterback Andrew Luck is pegged to go first overall, Irsay decided it was time for a rebuilding period.
"It's a difficult day here of shared pain between Peyton, myself, the fans, everyone," said an emotional Irsay, who added that no other Colts player will wear Manning's No. 18.
"We tried to put each other in each other's shoes and tried to realize what the situation was for the franchise, what it was for Peyton and in the end those circumstances were too difficult to overcome."
Manning, who turned the Colts into a perennial contender and broke all of the franchise's major career passing records, also struggled to fight back tears.
"I have been a Colt for almost all of my adult life, but I guess in life and in sports we all know that nothing lasts forever," said Manning.
"This is unchartered territory for me ... I haven't thought yet about where I'll play but I have thought a lot about where I've been, and I've truly been blessed to play here an blessed to be in the NFL."
NEW ERA
Doctors have cleared Manning, who had never missed a start before last season, to resume his career.
Manning, who will become perhaps the most sought after free agent ever in the NFL, stressed how much playing for the Colts had meant to him, but said he was eager to get back to playing.
"I'm throwing it pretty well," he said. "I still have some progress to make ... (but) I'm enjoying being back out there.
"Nobody loves playing quarterback more than I do. I still want to play."
Many NFL clubs are believed to be interested in signing Manning, including the Miami Dolphins, Washington Redskins, Arizona Cardinals and New York Jets.
Following the dismal season, the Colts set the stage for launching a new era by firing Vice Chairman Bill Polian, General Manager Chris Polian and head coach Jim Caldwell.
Manning led Indianapolis to 11 playoff appearances, won two AFC championships and was named Super Bowl MVP in the Colts' victory over the Chicago Bears in 2007. He has thrown for more than 4,000 yards in a season an NFL record 11 times.
The 11-time Pro Bowl player, whose name graces a children's hospital in Indianapolis, has been credited with helping the team gain its new Lucas Oil stadium and getting the opportunity to host last month's Super Bowl.
"It really feels like a death in the family," Indianapolis Star columnist Bob Kravitz told ESPN radio about the decision to release Manning. "He's been the face of the city.
"(But) I think smart people look at the numbers and understand that you can't throw $28 million at a guy who is in a really dicey physical situation, who may be one snap away from the end of his career."
