Williams, 24, was out of contract this summer and has turned down the new deal offered to him by Scunthorpe.
He was contracted until the end of June, but this has been terminated two months early and the club said he would sign for another Championship club. BBC Radio Humberside reported over the weekend that he had agreed terms with Reading.
Paul Hayes, United's player of the season, had left the club earlier in the day when he joined Preston North End on a Bosman transfer.
Williams' exit raises the possibility of a move for the Brighton left-back Jim McNulty, who finished the season on loan at the Iron.