O'Sullivan - who won his fourth world title at Sheffield's Crucible Theatre last month - had threatened to take some time out of the game as he complained about the impossibility of balancing family life with the need to travel extensively under Hearn's new regulations.
And the 36-year-old has now refused to sign the world snooker players' contract, thus ruling him out of all World Snooker competition.
"I have decided not to enter any tournaments for the time being including this year's Premier League and forthcoming WPBSA ranking events," O'Sullivan said in a statement.
"I have not signed the player's contract as I feel the contract is too onerous and am in a stage of my career where I don't wish to make this commitment.
"I still want to play snooker and visit those places around the world such as China where snooker is enthusiastically received and adored.
"I hope to remain involved in the sport in some way in the future."
Hearn and World Snooker have refused to budge on the terms of the contract.
"As much as we will miss Ronnie O'Sullivan in World Snooker events, we simply can't make exceptions for one player's individual requirements. Our duty is to treat all of the players equally," said Hearn.
"Ronnie is at liberty to enter our events and play on the circuit at any time, once he agrees to abide by the rules of the players' contract."