In his two years in Denver, Bly recorded 134 tackles, a sack and seven interceptions, including 77 stops and two pickoffs last season.
He's the fourth defensive starter dumped this week by the new regime of general manager Brian Xanders and coach Josh McDaniels, who replaced the fired Mike Shanahan.
Bly was due to count $6.8 million against next season's $123 million salary cap.
On Monday, the Broncos released high-priced defensive tackle Dewayne Robertson, who had a $16 million cap number, along with linebacker Jamie Winborn, safety Marquand Manuel, special teamer Niko Koutouvides, defensive end John Engelberger and tight end Nate Jackson.
Bly, Winborn, Robertson and Manuel all started last season for Denver's dismal defense that surrendered 448 points and finished at or near the bottom of the league in every major category.
Bly's agent, Kennard McGuire, declined to comment when reached by The Associated Press on Tuesday night.