Kelly said he was a surprised about the move because the coaching staff had told Kiel he’d have an ample opportunity to compete for the starting role this spring.
"We had kind of created an opportunity for him to compete in the spring," Kelly said. "So maybe a little surprised from that standpoint, because he was actually told he'd be given the opportunity to compete. Sometimes when you don't hear that, you wouldn't be surprised.
"While we are sad when kids don't go through the entire program, we want what's best for them. We are educators as well as coaches."
Kiel spent last season behind sophomore starter Everett Golson on the depth chart. Golson led the Fighting Irish to the BCS title game and is returning next season.
There is no word yet on which school Kiel will transfer to. If he chooses to transfer to another FBS school, Kiel will have to sit out the 2013 season and have three years of remaining eligibility beginning in 2014.