The decision also means that the manufacturer will depart from the World Touring Car Championship after the 2016 season, with rallying preferred as the long-term option.
Driver Sébastien Loeb, who won nine WRC titles with Citroën and has recently been part of its touring car campaign, is set to leave the manufacturer to join sister brand Peugeot's Dakar Rally programme.
Yves Matton, Citroën Racing team principal, said: "We have never hidden our interest in the 2017 WRC regulations and the entire team is extremely motivated by this new challenge.
”With a view to managing our resources efficiently, we have decided to focus all our efforts on designing and developing our new World Rally Car.
“This is why Citroën will not be competing in the 2016 World Rally Championship as a works team."