Honda currently supplies engines to the two Red Bull-backed teams, Red Bull Racing and AlphaTauri.
A statement from Honda said: "Honda will work together with Red Bull Racing and Scuderia AlphaTauri to continue competing with its utmost effort and strive for more victories all the way to the end of the 2021 season."
The Japanese carmaker added the decision to leave F1 comes as the automotive industry moves away from internal combustion engines. Honda is committed to pursuing its goal of carbon-neutrality by 2050.
Honda's decision leaves just three engine suppliers on the F1 grid - Mercedes, Ferrari and Renault. That leaves Red Bull and AlphaTauri in a predicament. Mercedes has previously denied Red Bull a supply of its power units while the split with former engine partner, Renault, ended acrimoniously.
Red Bull and AlphaTauri remain committed to the sport, having recently renewed their Concorde Agreement that guarantees they will be on the grid until at least 2025.
Red Bull Racing boss Christian Horner said: "We look forward to embarking on a new era of innovation, development and success. As a group, we will now take the time afforded to us to further evaluate and find the most competitive power-unit solution for 2022 and beyond."
Honda returned to F1 as an engine supplier to McLaren after a six-year absence in 2015 However, the three-year relationship proved difficult and in 2018, the Japanese company started supplying power units to Red Bull junior squad, Toro Rosso, before adding Red Bull Racing as a customer in 2019.
Since then, Honda has scored five grand prix victories as an engine supplier, with Red Bull taking four wins and AlphaTauri one.
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