Powerful all-rounder Shane Watson retired from Australia's Twenty20 Big Bash League on Friday, but will continue playing select overseas tournaments.

The 37-year-old, who quit international cricket in 2016, stood down as Sydney Thunder's captain and all-time top run-scorer to spend more time with his family.

"I have so many amazing memories that I will savour forever with the one standout being our (tournament) win in 2016," he said.

"To my teammates, I have played with so many great people and cricketers at the club and I sincerely wish everyone the absolute best for the upcoming seasons."

Despite his age, Watson remains a force to be reckoned with.

He smacked a century from just 62 balls for the Thunder against the Brisbane Heat last season and hit 96 off 53 balls for the Chennai Super Kings in the Indian Premier League this week.

Cricket Australia chief executive Kevin Roberts congratulated him on a "dynamic career".

"Shane Watson was one of the most exciting short-form players ever to grace a cricket field," he said.

"In a career which spanned almost two decades Shane made a major contribution to Australian cricket firstly at international level and then in domestic cricket as a significant contributor to the Big Bash.

"Talented, skillful and powerful, Shane was a devastating batsman at his best."

Watson played more than 700 international and domestic matches in total, scoring over 25,000 runs and claiming in excess of 600 wickets.

He is the only Sydney Thunder batsman to score more than a 1,000 runs and head coach Shane Bond called him "the ultimate professional".

"He cared about the team and the players and was hugely respected in the dressing room. We're really going to miss what he brings to the team and he will be a big loss," he said.