"We made mistakes in making our first app and ultimately we weren't able to turn it into the vision that I had had," he said in a video on Sunday.
Brownlee - who goes by MKBHD on his socials - told viewers he wanted it "to become a vibrant ecosystem" for wallpapers, and supporting the artists who design them.
He said the app had had some successes - topping app download charts at launch and seeing two million wallpaper downloads - calling it "a rollercoaster ride".
"But at the end of the day, it wasn't able to sustain," he said, noting the app's "niche" appeal and audience.
Brownlee had previously highlighted the app's potentially limited appeal when responding to criticism of it shortly after it launched.
"The target market for this is insanely small," he told one user on X last September who questioned his decision to launch a digital wallpapers app.
"Most people don't download a wallpaper app.
"This is for those who have been asking. If you're not into it, don't worry about it."
He also thanked the artists who had been involved in creating wallpapers for the app.
A notice on the Panels website said users would be able to keep purchased or downloaded wallpapers from the app "forever" and be refunded for any active subscriptions after its closure at the end of the month.
They would also be able to create their own spin-offs of the app, as the code behind it would become open source.
"This will allow anyone to build on what we started - we're excited to see what new projects may grow from it," the notice read.
