Muscat's 14-year association with the Australian giant as a player and a coach will come to an end after Wednesday's final AFC Champions League group-stage clash against Sanfrecce Hiroshima.
The 45 year-old, who captained Victory and worked as an assistant before taking the reins in 2013, is set to depart after the side's humiliating 6-1 loss to Sydney FC in the A-League Semi-Final.
After captaining Victory to two championships, club great Muscat oversaw another two as coach – including the 2017-2018 triumph – as well as a premiership and FFA Cup.
"This is not a decision made overnight or taken lightly," former Australia international Muscat said via a statement. "I believe the time is right for me to refresh, and in time, seek a new opportunity after giving everything I've got emotionally and physically to Melbourne Victory over the last 14 years.
"We have created and earned many great memories along the way including our eight trophies. It goes without saying that I will love and support this football club and wish it nothing but success."
Victory chairman Anthony Di Pietro added: "Kevin has been incredibly successful as both a player and coach and will go down as one of the most influential figures in Melbourne Victory's history.
"The parting was an ongoing collaboration and unified decision, and we wish Kevin nothing but the best for his future. He is a talented and highly successful coach, has been such an integral part of our club and will always be part of it."
Rumours about Muscat's replacement have already emerged, with former Adelaide United boss Marco Kurz linked to the Melbourne outfit.
Talk of an Italian coach joining Victory has been mentioned and Di Pietro said: "Our priority will be to secure the right person as our next head coach who fits our criteria to take our club forwards.
"This is an opportunity to reset and shape the next phase of our club, and we view this as an exciting prospect.
"As I said on Friday, the one thing that will remain constant are the expectations we place on our club. We will not apologise for our relentless pursuit of success and this will remain at the forefront of our decision making."