Jeronimo Yanez, 29, was found not guilty of manslaughter last month for shooting the 32-year-old Castile during a traffic stop last year, after the driver informed the officer that he was carrying a gun for which he had a legal permit.
The death of Philando Castile -- one in a series of high-profile shootings of African-Americans by police -- stunned the nation.
His girlfriend Diamond Reynolds took to Facebook to livestream his agony as blood spread on Castile's shirt and the officer continued to yell orders with his gun drawn.
His family's $2.995 million settlement with St Anthony, a suburb of the state capital St Paul, avoided a federal civil rights lawsuit.
Following Yanez's acquittal, St Anthony said it would no longer employ him as a police officer.
Monday, city police said they reached a separation agreement with Yanez that ends his city employment rights.
He was not terminated or convicted of any crime. But he agreed to end his employment voluntarily, the city said.
"A reasonable voluntary separation agreement brings to a close one part of this horrible tragedy," the city of St Anthony said in a statement.
"The city concluded this was the most thoughtful way to move forward and help the community-wide healing process proceed."
The verdict sparked widespread protests in Minnesota, one of various US states where prosecutors have failed to secure convictions when police officers have fatally shot African Americans, even when there is video evidence of the shooting.
