It will bring an end to his seven-year association with the club he joined aged 16 form Manchester United.
The 23-year-old made 18 appearances in all for Rovers, including a Championship start at QPR last season, but spent the 2022/23 season with Port Vale.
He made 34 appearances for the Valiants, scoring four goals, but will now seek opportunities elsewhere as his time with Rovers comes to an end.
“It’s been a big part of my life for a number of years now and I’ve really enjoyed my time there,” said Butterworth.
“I’ll always cherish moments like beating Arsenal away in the FA Youth Cup, when I scored my first big goal for the club as a young lad, when we won the league with the Under-23s and when I made my Championship debut against Bolton Wanderers.
“I’ve met some great lads, who I will remain in contact with, the club has helped me a lot in my career and has made me a better player, so I’m incredibly grateful for that.
“I think now’s the right time for me to leave, to try and get as many games under my belt as I can, and to find a permanent home where opportunities are there for me.
“I’ve enjoyed my time on loan at Port Vale, playing regular first team football and getting a few goals and assists to my name, and that’s just made me want to go and play even more games.
“I’d like to wish everybody at Blackburn Rovers well for the future. They deserve a chance again to go up and I’m sure they’ll get the club back to the Premier League.”
A prolific goalscorer at youth level, Butterworth helped Rovers Under-23s secure the Premier League 2 Division 2 title in 2017/18, before making his first team debut in August 2018 in a 4-1 victory over Lincoln City at Ewood Park the Carabao Cup.
Butterworth made 12 appearances in the Championship for Rovers last season before joining Fleetwood Town on loan.
He made a further loan move to Port Vale last summer, becoming a regular for the League One side.
A club spokesman said: “Rovers would like to thank Dan for his efforts over the years and we wish him well in his future career.”