The veteran striker signed a new one-year player-coach deal in the summer when Steven Gerrard was at the helm at Ibrox.
Although Defoe has not been a fixture in the Gers squad, he opted to extend his stint for one more year as he looked to take his first step into coaching.
However, the 39-year-old was dropped from the coaching staff at Ibrox following the arrival of Giovanni van Bronckhorst, who replaced Gerrard.
And Defoe is now set to leave the Scottish champions in the ongoing window.
Defoe arrived at Rangers in January 2019 on an initial loan deal from Bournemouth and has scored 32 goals in the famous light blue shirt.
But Defoe’s departure will not see Rangers having one fewer attacking option as they have triggered a recall clause in Cedric Itten’s contract to bring him back from Bundesliga club Greuther Furth.
It is unclear whether the end of Defoe’s spell at Rangers will also mark the end of his lengthy playing career.