David Goodwillie will not play for Raith Rovers and the club is reviewing his contract after admitting it "got it wrong" by signing him.
The club sparked an outcry on Monday by signing the striker, who was ruled to be a rapist and ordered to pay damages in a civil case in 2017.
Two directors resigned in protest, sponsors withdrew and its women's teams moved to sever ties with the club.
Chairman John Sim said he had "learned a hard but valuable lesson".
He said the Scottish Championship club "bitterly regret" signing Goodwillie, adding that the 32-year-old would not be selected to play and that talks would begin with him about his contract.
Author Val McDermid - who ended her sponsorship of the club on Tuesday in protest - welcomed the announcement, but said it was "just the first step on a long road back".
Raith initially defended the decision to sign Goodwillie from Clyde, saying it was based primarily on his abilities on the pitch.
But on Thursday morning Mr Sim issued a fresh statement via the club's website apologising "wholeheartedly" to fans, sponsors and players for the "anguish and anger caused over the past few days".
He said the board and management team had "listened carefully" to fans who had got in touch.
He said: "This very unfortunate episode is something that we all bitterly regret and we are now wholly committed to making things right.
"I can therefore confirm that, following a meeting of the board, the player will not be selected by Raith Rovers and we will enter into discussions with the player regarding his contractual position."
Ms McDermid - who has a stand at the club's Starks Park stadium in Kirkcaldy named after her and is the team's shirt sponsor - ended her support of Raith on Tuesday in protest at the move.
Responding to the U-turn on Thursday, she said it was "a victory of sorts of the hundreds of people who make the club, who were appalled a the original decision".
She said: "It's just the first step on a long road back. The same people who made the decision are still in charge.
"Those who love and value the club are still on the outside - they need to be on the inside, shaping the future for the community."
The chief executive of Scottish Women's Football had warned the signing could have "devastating" consequences for the game, with Raith's girls and women's teams saying they were looking to break away from the club.
There was also condemnation from politicians, with the issue raised in the House of Commons and former prime minister Gordon Brown - one of Raith's most high-profile supporters - saying he could not back the signing.
Frist Minister Nicola Sturgeon also criticised the signing, and said the football authorities should take action.
'Proven goalscorer'
Goodwillie, a former Scotland international who has previously played for clubs including Aberdeen and Dundee United, was in the stands on Tuesday night as his new club drew 3-3 with Queen of the South.
Raith said he had been signed as a "proven goalscorer", but Mr Sim now says the board had "focused far too much on football matters and not enough on what this decision would mean for our club and the community as a whole".
Goodwillie never faced a criminal trial over the rape accusation, with prosecutors saying there was not enough evidence.
However, he was taken to court by a woman who said she was raped by Goodwillie and his former Dundee United team-mate, David Robertson, after a night out in 2011.
Both men accepted they had sex with her, but maintained it was consensual.
The judge in the civil case ruled that both had raped her, saying she had been "incapable of giving meaningful consent", and ordered them to pay her £100,000 in damages.
Goodwillie left Plymouth Argyle by mutual consent following the ruling, and later signed for Clyde - then competing in Scotland's League Two.
This move also attracted criticism, but the club defended the decision and said people should be allowed to rebuild their lives after mistakes.
Goodwillie went on to become club captain, scoring more than 100 goals in five and a half seasons. Clyde said he had made a "tremendous contribution", and that they had given him "a football home and platform to enjoy what he does best at a difficult juncture in his life".
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