The 34-year-old Friedrich, who represented Germany 82 times, had been combating injuries that prevented him from playing at all this season.
He appeared in 23 MLS games for the Fire in his first league campaign in 2012 and was named the club's Defender of the Year after joining from VfL Wolfsburg.
He had been signed to a new deal for the 2013 season in November.
Friedrich had resumed training with the Fire at the end of March only to return to his native Germany at the end of May to seek treatment on his hip. He also cited two herniated discs in his back on the announcement on his website.
With Friedrich unable to perform, the Fire traded for Philadelphia centre-back Bakary Soumare to help augment their back line, a sign that Friedrich's recovery was not accelerating as hoped.
The club have won three and lost two of their opening five league games since the deal and have also advanced to the quarter-finals of the US Open Cup.