The powerful 23-year-old midfielder was signed by former boss Paul Buckle last season from Skrill Premier rivals Macclesfield Town for an undisclosed fee.
The Frenchman played 29 times for the Hatters, including the FA Cup victories over Wolves and Norwich.
A club statement read: “The Hatters have mutually terminated the contract of midfielder Arnaud Mendy with immediate effect.”
He was a regular under both Buckle and current manager John Still before an undisclosed ‘breach of discipline’ saw him ostracised from the team as Still declared he would not feature for him again.
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Still briefly relented when Mendy played in the goalless FA Trophy draw at Staines Town last month.
The statement added: “Everybody at Luton Town wishes Arnaud well in his future footballing career.”