The shock news comes just eight days before Tigers’ opening Betfred Super League fixture against Warrington Wolves at Leeds’ Emerald Headingley.
Warrington have also confirmed their coach, Steve Price, is in his final year and Powell will inevitably be linked with the big-spending Cheshire outfit.
Powell, 55, took charge midway through the 2013 season, when Tigers were struggling towards the bottom of Super League.
Since then, the former Great Britain player has turned the club into title challengers, qualifying for the play-offs four times, reaching Wembley and Old Trafford and winning the league leaders’ shield in 2017.
A club statement insisted Powell is “wholly committed to the Tigers for the upcoming season”, but has “agreed to an updated contract which will see him finish his tenure with the club at the end of 2021, with a strong ambition of leaving Castleford Tigers on a high note”.
Powell said: “This is my eighth full season in charge, which for a coach is a long time and towards the end of last season, I sat down with [chairman] Ian Fulton and explained what I wanted to do.
“For both me and the club, it is the right time.
“I want to finish what has been an unbelievably great time for me at Castleford personally in a positive way this year.
“It gives the club time to plan for the future, I thought the timing was right and I wanted to make a proactive decision.
"For both parties it gives us that time.”
Powell added: “I am massively motivated this year.
“I have loved being a part of the club’s history and helping players to grow and develop and I would really love to finish off in a positive way with a Grand Final win and close a chapter that has been such a special time in my life.
“There is always an end of an era and it certainly feels like that for me and it will be a great opportunity for the team and the club to finish that era in a special way.
“It is going to be tough no doubt about that, but we have had an awesome pre-season and there is a good opportunity for us all to pull together and make sure anyone finishing at the club this year has a special final season.”
Powell began his playing career at Sheffield Eagles and had a spell as player-coach of Keighley Cougars before joining Leeds Rhinos in 1998.
He coached them from 2001-2003, spent time in rugby union and returned to league with Featherstone Rovers in 2008.
Having led Rovers to top spot in the second tier three times and a Grand Final win, he moved to Tigers in May, 2013.
“Castleford has been my club,” he said.
“I supported the team as a young fella and for me to be able to coach the team has been a dream come true.
“I almost achieved the very pinnacle by winning the Grand Final, but I think we have been super-consistent and I think we have played in the true Cas style, in a Classy Cas way.
“It means a lot to me when I speak to the past players of the club and they talk about us upholding the history and standards of past playing days.
“The fans have been absolutely unbelievable; I walk across the pitch at every home game and the reception I get is always special so I hold that dear and I always will.
“Castleford Tigers is a special club and I have had a really special time being a part of it.”
Fulton said Tigers have already begun their search for a replacement.
He said: “After some lengthy conversations that started at the end of 2020, both Daryl and the club felt that with a number of coaches and players out of contract at the end of the year, 2022 would be the right time for a new face to come in and take charge.
“The process of appointing that person will be incredibly thorough and has already begun internally.”
Paying tribute to Powell, Fulton added: “I personally - and on behalf of all Tigers' fans - would like to thank Daryl for all his hard work over the years.
“He has been an integral part of this team and indeed the local community in the time he has spent here.
“I know his achievements here will have given him and his family memories to last a lifetime and he is committed to making even more in 2021 and we would love to see him end his time at Castleford with silverware.
“Once again, I would like to say how thankful I am to Daryl and to his family for all that they have given to the Fords over the past eight years and everyone at the club wishes him well for the upcoming season and beyond.”
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