The two-time major winner, without a PGA Tour card and playing on sponsors' exemptions, missed the cut at the Farmers Insurance Open in San Diego on Friday night.
He then told a Golf Channel camera crew filming a reality TV show about him: "I can't compete. I can't play like I use to.
"I can't keep taking spots from guys out here playing this bad. It's not worth it.
"I'm tired of embarrassing myself in front of my fans. I can't do it any more."
But Daly moved to clarify his position via a series of messages on his Twitter account, PGA–JohnDaly.
"I'm not retired and never said I was retiring," Daly wrote.
"I'm going to honour the commitments to the tournaments that have given me sponsors' exemptions and will continue to try and get them this year.
"The interview yesterday caught me after a tough two days and much frustration. I have talked to all of my sponsors and they just want me to continue to play."
Daly, 43, also denied the comments were a publicity stunt for the reality show, adding: "Not my style."
Daly carded rounds of 79 and 71 at Torrey Pines, the scene of the last of his five PGA Tour victories at the 2004 Buick Invitational.
Daly had also missed the cut at his first event of the year, the season opening Sony Open in Hawaii, two weeks ago as he bid to rebuild his career, having served a suspension from the PGA Tour for the first half of 2009.
He instead played on the European Tour, and found some early success as he competed in 10 events, tying for second at the Italian Open at Royal Park course in Turin and 27th at the Open at Turnberry. On returning to the USA he played six events, missing two cuts and withdrawing from another.