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Local media reported that Gillespie, 32, had signed a three-year contract with the rebel Indian Cricket League (ICL).
"I have invited you here to finally put an end to the speculation and officially announce my retirement from first-class cricket in Australia," Gillespie told a news conference in Adelaide.
"Cricket has been very good to me. I have travelled the world, I have met some fantastic people, and I have spent my time doing the thing I love the most -- playing cricket.
"But it has always been important to me to end my career on my own terms, while I am still contributing. I do not want to get tapped on the shoulder and shown the door.
"And the time has come. I have a young family to consider. My daughter has reached her teens, I have travelled for all of her life, I think it is time I was around for her, and her brothers and my wife."
Gillespie is Australia's sixth-highest test wicket taker with 259 victims at an average of 26.13 in 71 matches.
He formed a formidable new-ball partnership with Glenn McGrath from 2002-05 and was capable of bowling long spells with consistent line and length.
Record score
While not known for his batting, Gillespie holds the record for the highest test score by a nighwatchman, making 201 not out against Bangladesh in 2006 and sharing a 320-run fourth-wicket partnership with Mike Hussey.
The tall right-arm seamer made his test debut in 1996 against West Indies but suffered a succession of injuries.
He spent 15 months out of the team after colliding with his captain Steve Waugh in the outfield during a test in Sri Lanka in 1999 and suffering a badly broken leg.
Gillespie battled back into the side and was a mainstay in the attack from 2002-2005 before being dropped during the Ashes series in England.
He was recalled for the 2006 series in Bangladesh when several frontline bowlers were missing but was overlooked again on the team's return to Australia.
Gillespie also took 142 wickets in 97 one-day internationals at an average of 25.42.
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