The chart-topping group - which features Niall Horan, Liam Payne, Harry Styles and Louis Tomlinson - have mutually agreed to an extended hiatus of at least 12 months in order to pursue their own solo projects and they will not launch a tour to support the launch of their fifth album, meaning their last full concert will be in Sheffield at the end of October.
A source said: "The guys have been together for five years, which is an incredible run for any boyband.
"They fully deserve to have at least a year to work on their own projects. There is absolutely no bad blood between them and they are all 100 per cent behind the decision.
"It is definitely not a split and they fully intend to get back together at some time in the future.
"But for now it is the end and they go out on top as the world's most popular music act."
The 'Steal My Girl' hitmakers intend to release their latest album in time for Christmas and will fulfill the remainder of their promotional commitments for record label Syco in February.
The insider shared: "Simon Cowell and his team at Syco couldn't be more excited about the album.
"They believe there are at least three smash hit songs and they've got the boys to stay together for a few weeks beyond the end of the year to make the album a huge success.
"But there was a meeting recently where it was agreed there would be no tour for the album.
"That was a big call because it means come March, Harry, Liam, Louis and Niall will be free agents for the first time in five years."
What's more, the source insisted the decision to disband was unrelated to Zayn Malik walking away from the group earlier this year.
The source told The Sun newspaper: "This was the plan with or without Zayn. In fact, the band have been making amazing music and been incredibly happy without Zayn.
"Of course they would have preferred that he had stayed in the band, but they would have taken this extended hiatus even if he hadn't left."
The band members are expected to begin negotiations about their own individual futures in the coming weeks, with Harry being lined up by Sony.
The source added: "All the boys have a massive amount of options available to them. It's an exciting time because for the last five years they've always put the band first.
"Sony definitely want to secure a solo record from Harry. He has been building up to this moment for a long time and there is also a lot of interest in him from Hollywood.
"But they're all going to be successful in their own right. They have the best contacts and a massive fanbase."