As exclusively revealed by Goal.com on Thursday, the 22-year-old has decided against renewing his current contract, which expires in the summer, after failing to reach an agreement with the Bundesliga outfit.
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The club's general manager and former player, Horst Heldt, indicated that Schalke respect the German's personal decision but is confident that he can still play a vital role in the remainder of the team's season.
"We wished that Lewis [Holtby] saw his future at Schalke," he told their official website. "But like Klaas-Jan now he has made a personal decision that we respect.
"We are sure that he will give [everything] up to the last day of the season to make the contribution of our team successful."
Brendan Rodgers' side now look favourites to secure the services of Holtby in the summer, but they are sure to face competition for the boyhood Everton fan.
A whole host of Europe's top teams are said to be interested in the midfielder, with Arsenal the other Premier League outfit reportedly linked with a move.