The 2009 British and Irish Lions tourist helped Merthyr win promotion to the Welsh Premiership after joining from the Dragons in 2015.
The 23-cap back-rower has been unable to shake off his latest injury problem though, and has been forced to admit defeat in his bid to return to action.
“Andy’s found it hard to get over his current knee injury and will not be forgotten,” said Merthyr chairman Peter Morgan. “He was a big part of our success last season as captain. Andy had plenty of time for everyone, he will be sadly missed on the field and off but will always be welcome to our club.”
Powell had stints with Leicester, Scarlets, Cardiff Blues, Wasps and Newport, as well as a year in rugby league with Wigan.
He made his Wales debut in 2008 but after a dramatic last-minute victory against Scotland in February 2010 he was arrested for driving on the hard shoulder of the M4 in a golf buggy.
Powell had decided to go to a motorway service station for “munchies”. He drove a mile and a half in darkness along the M4 before being stopped by police at the Cardiff West service station. He failed a breath test and was later given a 15-month driving ban and fined after admitting the offence at Cardiff Magistrates court.
Powell was removed from Wales’ Six Nations squad after that incident, but returned to the team later that year and went on to play nine more times for his country.