The 34-year-old goalkeeper, who won the last of his Irish seven senior caps in the disastrous defeat to Cyprus in 2006, has been frozen out at Elland Road this season.
And the writing was on the wall when a clearly overweight Kenny was omitted from the squad for a pre-season tour to Italy.
Now the club have agreed to cancel his contract and let the former Sheffield United and QPR man move on.
"Paddy has been very professional about it, to be fair to him," said Leeds head coach Dave Hockaday.
"He was not taken away to Italy, although he had been ill a couple of days previously. He has conducted himself really well and I genuinely wish him well. I think he is a good 'keeper, and I think he is a good lad.
"The club will obviously come to a compromise deal with him and I am sure he will go somewhere and do well," he added.
