Batty finished at Leeds
The veteran was reportedly fuming at Gray's decision to axe him from the squad to play Aston Villa on Saturday, with the Whites boss now opting to omit him completely for the remainder of the campaign.
Batty was a regular under David O'Leary during the Irishman's tenure at Elland Road, but was left on the sidelines due to poor fitness when Terry Venables took over in 2002.
Peter Reid immediately brought the former Newcastle midfielder back into the fold after assuming control in March 2003, but he failed to make an appearance before season's end.
Batty return to the fold this term, making 14 appearances under Reid and Gray, however his 30 minute run-out against Newcastle in January proved to be his last playing time for the club.
"I had a chat with David and explained how I felt. I've just told him I won't be using him between now and the end of the season," confirmed Gray on Monday.
"It's just for footballing reasons. I've got to make decisions. I would think so (the end of Batty's Leeds career), but you can never say never.
"When I'm in the position I'm in I'm going to get criticised anyway and I've made that decision. He was okay when I told him.
"I think he's been frustrated with himself over the last few weeks, with the way things have been going for him with his injury. He didn't necessarily agree, but I think he understood."
The 35-year-old, a Leeds supporter who began his career at Elland Road in the 1987-88 season, is out of contract in the summer and could now retire from professional football.
Batty's agent Hayden Evans revealed his client's disappointment, saying: "David was asked into a meeting and told of the decision. As you can understand, he is extremely disappointed."