The 31-year-old joined the club on a one-year deal in August 2012 having been released by Hearts, but he has struggled with injuries in recent months.
"Kevin has left the club by mutual consent. We have terminated his contract and he goes with our best wishes for the future," McCoist told the club's official website.
"He got an injury at a very bad time because he got back in the team and scored one or two goals, then got an injury up at Montrose.
"I sat down and explained to Kevin that next season the club is going in a different direction and I thanked him for his services."
Kyle scored three goals in eight games for Rangers.