Having signed from Crusaders two years ago, Fotuali'i has made 39 regional appearances, scoring six tries and one drop-goal.
Andrew Hore, Chief Operations Officer at the Ospreys, said:
"We are obviously disappointed to lose a player of Kahn's quality. We made what we consider a very competitive offer to the player to retain his services, but unfortunately, he has advised us that his future lies elsewhere.
"When Kahn signed for us it was pretty much under the radar and he has thrived in our environment, playing the best rugby of his career this season which has led to the intense interest in his services.
"Kahn was happy to stay here, but we were unable to match the salary available elsewhere, and we totally understand that it is only a short career and he needs to put his and his family's future first.
"Although this is disappointing news, the early decision from Kahn allows us to move forward positively as a business with an eye on next season and possible player recruitment. We will continue to look for under the radar signings who will offer value for money while contributing immensely to our environment, just as Kahn has.
"We are sure that Kahn will continue to serve us well between now and the end of the season as we look to retain our RaboDirect PRO12 title."
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