Kenny Dalglish has been sacked as Liverpool manager.
"After a careful and deliberative review of the season, the club came to the decision that a change was appropriate," read a statement.
"Results in the Premier League have been disappointing and we believe to build on the progress that has already been made, we need to make a change."
Dalglish said his departure had been handled in a "honourable, respectful and dignified way".
Wigan manager Roberto Martinez and former boss Rafael Benitez have been installed as early favourites to fill the position.
Dalglish, 61, has paid the price for Liverpool's poor Premier League performances, especially at Anfield.
His departure comes after face-to-face talks with principal owners John W Henry and Tom Werner in Boston on Monday.
Despite reaching the FA Cup final and winning the Carling Cup, the Reds finished eighth in the top flight having lost as many games as they won.
"I am disappointed with results in the league, but I would not have swapped the Carling Cup win for anything as I know how much it meant to our fans and the club to be back winning trophies," said Dalglish.
Dalglish had been expected to take a holiday this week, but flew to the US instead to review the season with Henry and Werner.
Dalglish's dismissal follows the departure of director of football Damien Comolli and the club's head of sports medicine Peter Brukner in April.
Dalglish returned to manage the club for a second time in the wake of Roy Hodgson's departure in January 2011, initially on a caretaker basis until the end of the season.
After a strong finish to the season he was made permanent manager on 12 May 2011 on a three-year contract, but has been unable to carry that momentum into the new campaign.
Dalglish's second stint in charge at Anfield also proved controversial at times.
The Scot defended Luis Suarez in the wake of the striker's ban for racially abusing Manchester United defender Patrice Evra when the teams met in October.
After the Uruguayan's apparent refusual to shake Evra's hand in the return fixture in February, an apology from both player and manager came only after the intervention of the US owners.