It was announced earlier in the season that the Fijian international would be leaving Glasgow Warriors to join their Pro14 rivals in Belfast.
He played his last game for the Scotstoun club in April when he came off the bench in the 46-19 defeat by Benetton in the Rainbow Cup opener.
An Ulster Rugby spokesperson said: “We can today confirm that, on receipt of a detailed medical report following an examination by the club at the weekend, Leone Nakarawa will no longer be joining Ulster Rugby for next season.
“This outcome is disappointing for both the player and Ulster Rugby, however, we will continue to build strongly with our preparations for next season. We wish Leone the very best for the future.
“Further updates on the 2021/22 season squad will be released in due course.”
Nakarawa’s second spell with Glasgow was blighted by a knee injury. The former European Player of the Year rejoined the club in January 2020 but disruptions caused by the Coronavirus pandemic and the knee combined to limit severely his game time.
His appearance off the bench in Glasgow’s 1872 Cup victory over Edinburgh on 16 January was his first of the 2020-21 season.
Nakarawa was a hugely popular figure during his first spell with Glasgow, helping them win the Guinness Pro12 final against Munster in 2015. He left the club in 2016 to join Racing 92 in Paris.
The 33-year-old was part of the Fiji side which won an Olympic gold medal in the rugby sevens at the 2016 Games in Rio.