The former England Under-20 captain has failed to recover from a stress fracture of the tibia and has now decided to hang up his boots.
Clare made over 200 appearances during two spells with the Hatters after joining them from Derby County in 2000.
"His approach to the game - and to life in general - has certainly been tested by the circumstances he has found himself under since picking up the injury at Macclesfield in April last year," read a club statement.
"A lesser character might well have crumbled under the strain but, even in his darkest moments, Rob has maintained a positive and cheerful disposition which belies the pain and stress he must be feeling as he faces the responsibilities of supporting his young family."