The three-time all-star missed 66 regular-season games after surgery in November and has played sparingly in the first-round playoff series against Cleveland, which held a 3-2 advantage after losing Game 5 88-87 Wednesday.
"It's frustrating because I was willing to do anything," Arenas told The Washington Post. "I end up taking the shot, taking four different kinds of pain pills, Vicodin, I sound like a drug addict just to play in the game, and it still doesn't work. I need to rest it, go back and start rehabbing it again and get ready for next season."
WJLA-TV in Washington reported that Coach Eddie Jordan learned about Arenas' decision, announced one-hour before tipoff, through the media.
The seven-year NBA veteran will be a free agent in the off-season.
His career averages are 22.8 points, 5.5 assists and 4.2 rebounds per contest.
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