F1 legend Gerhard Berger thinks Sebastian Vettel should quit Formula 1 rather than switch to a midfield team.

With Fernando Alonso signed up at Renault, Ferrari refugee Vettel's only options for 2021 are a plum seat at Mercedes, or a move to a smaller team.

In Austria last weekend, Daimler CEO Ola Kallenius seemed to rule Vettel out of a works Mercedes seat by saying the team is happy with Lewis Hamilton and Valtteri Bottas.

"In theory I think both places are still free but they seem very happy with the way they are driving now and their success proves them right," Vettel, 33, told Servus TV this week when asked about Mercedes.

Rumours persist that Red Bull might be an option for 2021, but bosses Christian Horner say consistently that they are happy with Alex Albon as Max Verstappen's teammate.

However, Germany's Sport1 claims that both Marko and Red Bull mogul Dietrich Mateschitz would in fact "not stand in the way" of a return to Red Bull for the team's former quadruple champion.

Berger, who was Vettel's first team boss in the Toro Rosso days, told ran.de: "He shouldn't make the mistake of wanting to continue but ending up something in the middle.

"I wouldn't want that for Sebastian," said the former Ferrari driver.

In that scenario, Berger thinks the German would be better off retiring.

"I think he is strong enough to decide for himself with his four titles, many victories, no major injuries, good health and many memories to go home," said the 60-year-old.

Berger said he is disappointed that Vettel was not able to bring Ferrari back to the top as Michael Schumacher and Niki Lauda managed in the past.

"I actually believed that with his German meticulousness, ambition and precision he could do the same thing, but unfortunately he was not able to," he said.

Berger said Vettel and Ferrari have "obviously drifted apart and it was time to separate".