David Goodwillie "will not be selected by Raith Rovers" and the club "will enter into discussions with the player regarding his contractual position", chairman John Sim has said in a statement.
Goodwillie, who never faced criminal charges, was found by a civil court in 2016 to have raped a woman but continued his footballing career.
His move to the Scottish Championship side has caused an outcry from supporters, staff and the wider footballing world, with author Val McDermid – whose name is on the club's shirts and one of their stands – withdrawing her support.
The Raith Rovers women's football team also announced plans to disassociate from the club, while two members of the club's board resigned.
In a statement, the chairman apologised for the signing and the controversy caused.
The statement from Sim read: "I firstly want to apologise wholeheartedly to our fans, sponsors, players and the wider Raith Rovers community for the anguish and anger caused over the past few days.
"We got it wrong.
"In reaching our original decision, we 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.
"Over the past couple of days, we listened carefully to the fans who have got in touch and I'm very grateful for their honesty. As chairman, as a board and as a management team, we have all learned a hard but valuable lesson.
"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 Raith Rovers board, the player will not be selected by Raith Rovers and we will enter into discussions with the player regarding his contractual position.
"We share a desire to do what is best for our club and will be doing everything in our power to regain the trust and confidence of the Raith Rovers family."
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