Anelka wrote on social media he was leaving with "immediate effect" after failing to reconcile his differences with Albion over the 'quenelle' sign.
He made the gesture on 28 December and West Brom said it considers his conduct on that day, coupled with his social media outburst, to be gross misconduct.
The club have given him 14 days' notice of the termination of his contract.
The Frenchman, 35, was banned for five games and fined £80,000 by the Football Association for making the 'quenelle' gesture after scoring against West Ham.
He had also been suspended by Albion while the club carried out its own internal investigation.
On Friday, Anelka wrote on social media: "Following discussions between the club and myself, certain conditions have been set for me to rejoin the group, which I can't accept.
"In order to preserve my integrity, I've terminated my contract with West Brom with immediate effect."
However, West Brom responded by releasing a statement saying "the termination was invalid as it was not conducted under the correct legal process".
The statement also detailed the conditions Anelka needed to meet to enable his club suspension to be lifted.
It read: "The club required Nicolas Anelka to apologise to it, its supporters, sponsors and the wider community for the impact and consequences of his gesture made on December 28 and secondly, that he accept a substantial fine.
"Nicolas Anelka's purported termination of his Premier League contract via social media was invalid as this was not conducted under the correct legal process as required by his contract.
"The club considers the conduct of Nicolas Anelka on December 28, coupled with his purported termination on social media, to be gross misconduct.
"As a result the club has written to Nicolas Anelka giving him 14 days' notice of termination as required under his contract."
The striker, whose 12-month deal runs out at the end of the season, would only have been eligible to play in Albion's final five Premier League games.
Anelka was given the punishment by the Football Association's independent regulatory commission for making the gesture, which has anti-Semitic links.
He denied his use of the sign, described as an "inverted Nazi salute", was anti-Semitic and the commission accepted there was no intent by Anelka to be anti-Semitic.
The FA had initially wanted a tougher punishment for the player but opted not to appeal against the decision.
Anelka, who also did not appeal against the ruling, is due to begin his five-game suspension in Saturday's Premier League game at Swansea.
He claims he made the gesture in support of his friend Dieudonne M'bala M'bala, a French comedian who has been convicted seven times of anti-Semitic crimes.
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