The Dons were relegated on the final day of the season after they were held to a goalless draw at Rotherham - a win would have kept them up.
Chairman Pete Winkelman told the club website: "I am deeply disappointed that we have reached this position.
"We may have taken a step backwards in the past few days, but our ambition is still to secure the highest level of football possible for our supporters.
I'd like to thank Danny for all his efforts during his time with Milton Keynes Dons and wish him all the very best in his future career."