As the screenshot shows, Once a file linked to current activities, the menu still remained to be the same option "link to current activities".
I remember the feature worked just fine at first, after I disabled/enabled the Nepomuk, it went out of order.

If you go to the actual file on disk, do the options to link/unlink the file differ there?

bcooksley wrote:If you go to the actual file on disk, do the options to link/unlink the file differ there?

That would be the same,
however I created a new "Desktop Icons" activity and delete the default one, and now it works just fine.

I could replicate this issue and as a solution I removed all existing activities (migh be overkill) and now the unlinking option appears in right click

guessing something happened when upgrading to 4.11.x

You might want to report the problem to the Activities people then. Neither the context menu plugin ("Link to/unlink from Activity") nor the "activities:" kioslave have anything to do with Dolphin.

bug report https://bugs.kde.org/show_bug.cgi?id=325302