The decision means that honorary military appointments and royal patronages held by the Duke and Duchess of Sussex will be revoked and redistributed among working members of the royal family, the palace said in a statement.
But the couple said they will continue to be committed to their duties in Britain and elsewhere -- pointedly insisting that "service is universal."
A review of the couple's position since stepping back as senior royals last January was expected next month, but has been brought forward.
Harry and Meghan are due to join Oprah Winfrey for a major interview on March 7 -- their first sit-down appearance since leaving London for North America.
As long as the couple represented the Queen, they were always limited in what they were able to say publicly. Now it's been announced that they will not be returning as working royals, they will be able to speak more freely in the interview.
The two camps both released statements on Friday, with the first announcement coming from the palace. The Queen has "written confirming that in stepping away from the work of the Royal Family, it is not possible to continue with the responsibilities and duties that come with a life of public service," the statement said.
"While all are saddened by their decision, the Duke and Duchess remain much loved members of the family," it added.
A spokesman for the couple responded Friday that the Duke and Duchess of Sussex "remain committed to their duty and service to the UK and around the world" and have "offered their continued support to the organisations they have represented regardless of official role."
"We can all live a life of service. Service is universal," the spokesman added.