The Iceland stopper, who could return to COMS with his national team in June,
arrived on a free transfer in January as cover for the retired David Seaman and injury-plagued Nicky Weaver.
He had a baptism of fire in the memorable FA Cup replay win at Spurs, making a string of stunning saves, but David James then arrived and the only other chance Arason was offered was against United in the Cup as James was cup-tied.
Keegan confirmed: "Arni Arason will go as well as Michael Tarnat, Danny Tiatto and Gerard Wiekens. Arni is too good to be a number 2.
"He is at the wrong age to be a number 2. Part of me wanted him to stay and I have had a good chat with him. He needs to go and play, as he is an international player," the city boss told the club's official website.
"So we will be looking for another goalkeeper who will be a number 2. We can not go into a season with just David James and maybe Nicky Weaver and two young kids, good as they might be."
Meanwhile, David Sommeil is set to return from his loan spell with Marseille while striker Matias Vuoso could also be back for the start of the new campaign. The 22-year old hitman from Argentina has been on loan in Mexico all season.
"At this stage there is quite a lot of interest in Matias Vuoso, but there is nothing permanent," said keegan. "So at this stage you have to say there is a possibility that he will come back."
Keegan also confirmed that young reserves midfielder Glenn Whelan will be on his way and has signed a contract with another club - thought to be Second Division Sheffield Wednesday.