The Bundesliga side released a statement on Thursday saying the 29-year-old, whose contract expires this year, has played his final match for the club.
He will, however, continue to train with the team.
Club president Dirk Zingler said: "It is one of the fundamental values of 1. FC Union Berlin that we, as Unioner, form a solid, tight-knit community in which we stand up for each other and for our club.
"Sebastian, the only player in the first-team squad, coaching and backroom team, does not do this, unfortunately.
"This is not understandable for us and extremely disappointing. It's my immediate task, during difficult times, to protect the cohesion of the club's employees and squad, so we do not jeopardise the goals on the park.
"We have therefore decided that Sebastian will no longer be part of our matchday squad with immediate effect."
Polter, who joined Union from QPR in 2017, has started only two Bundesliga matches this season.
He has scored twice in 13 appearances in the top flight in 2019-20, in a 2-1 loss to Bayern Munich in October and a 1-0 win over rivals Hertha Berlin in November.