The 26-year-old former Crewe Alexandra and Norwich City forward made the decision after taking independent medical advice.
Ashton has struggled since he initially suffered the problem while training with the England team in August 2006.
His last game for the Hammers proved to be the 3-2 defeat at West Brom 15 months ago since when he has endured surgical procedures and intensive rehabilitation, only to be told that his long-term mobility was in question of he tried to return to action.
Chief executive officer Scott Duxbury told the club's official website: "This is a sad day and our thoughts are with Dean.
"I'd like to place on record our thanks to him for all his efforts and wish him the very best. I'd also like to thank the fans for their patience and understanding during what has been a difficult time."
Ashton scored 72 goals in 182 games for Crewe and found the net 18 times in 46 matches for Norwich before moving to Upton Park almost three years ago for a club record £7.25million.
He missed the whole of the 2006-07 season because of the injury and his record for the Hammers read 19 goals in 56 appearances.
Source: DSG
