Woods, 30, has played since suffering the injury against Saracens in 2010 but the pain got worse and he suffered complications in February.
He had to have a metal pin removed which had been inserted during an operation to fix the injury.
The former England Saxons player says he can struggle to button a shirt, leaving him with no option but to concede defeat and hang up his boots.
"It is a very difficult decision to stop playing, but I have enjoyed playing the game professionally and Leicester Tigers is a great club," Woods said.
"The coaching staff here showed a lot of faith in me and gave the opportunity to win trophies, which is what every player wants to do."
Woods made 70 appearances for Leicester after joining the Tigers from Newcastle in 2008, winning the Premiership title in 2009 and 2010. He scored a try in the 2009 Heineken Cup final.
"Ben has been a very valuable member of the squad at Tigers for the last four seasons," said director of rugby Richard Cockerill.
"He enjoyed some of his best form in a Tigers shirt and started Premiership and European finals in his time here.
"It is unfortunate for any player when injury dictates the time of their retirement. We wish Ben well for the future and thank him for his service to the club."
Woods was Leicester's Rugby Players' Association representative.
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