The Limpopo side will be campaigning in the GladAfrica Championship following their relegation from the Absa Premiership.
Rise and Shine finished 16th on the table after only collecting 25 points in 30 matches.
Larsen arrived at the club in December 2019, replacing Zlatko Krmpotic after he won only four of their first 12 games.
When Larsen took over Polokwane were 13th on the log just a single point above the relegation zone.
The club's chief operations officer Tincy Tema confirms the news.
"The meeting went well yesterday, so because of our situation both the club and the coach decided not to continue this journey," Tema tells KickOff.com.
"Which means in the next season when we are in the first division we won't be having Clinton Larsen as our coach."
Larsen adds: "I was made an offer with regards to adjusting my current contract and we failed to reach an agreement, so we decided to mutually terminate my contract."