The news came first via the Ford team's Twitter account. Ford of Europe's vice president of marketing, Roelant de Waard, later issued a statement.
"Ford has a long and proud history in the WRC and this was not an easy decision. We have great respect for M-Sport and Malcolm Wilson, who have run the Ford WRC team since 1997."
"Working together, we have reached a point where the Ford Fiesta has become the car of choice in rallying, and we want to see this continue in the future," de Waard said.
M-Sport will continue on in the WRC with the Ford Fiesta, in much the same way Prodrive will continue flying the MINI flag.
"We understand that tough decisions have had to be made to safeguard Ford jobs," M-Sport boss Malcolm Wilson said.
"We accept the commercial reality of the situation and look forward to continuing our strong technical partnership into the future."
Ford has supported M-Sport since 1997 for 225 rally starts. The partnership has yielded 208 podium finishes, 52 wins and two manufacturers championships in 2006 and 2007.
However, the team has not taken any drivers to the world title over its fifteen year history as Citroen, Subaru and Peugeot have.
The WRC has also been through several lean years with many management and structural changes, and the departures of names synonymous with rallying, such as Subaru.
Ford's exit increases the pressure on the organisers to find a way to bring the sport back to its glory days.
Ford will continue to provide M-Sport with continuing vehicle and engineering support. While no announcement has been made, it is expected that Jari-Matti Latvala and Petter Solberg will continue with the squad for 2013.