The big striker, who scored 10 goals this season, was offered the new deal last week but will now move on as a free agent.
Boss Peter Taylor told the club's official website: "Sadly we have been unable to agree terms on a new deal and so Bayo will be leaving the club.
"I have the utmost respect for Bayo; he has been a superb ambassador for Gillingham and scored some very important goals for us last season.
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"He has been a model professional, a great character to have around the place and I have very much enjoyed working with him."
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