Roy Hodgson has left Liverpool with Reds legend Kenny Dalglish put in charge until the end of the season at Anfield.
Hodgson found himself under intense pressure at Liverpool following the disappointing 3-1 defeat to Blackburn in midweek.
Liverpool are languishing in 12th spot in the Premier League and are sitting just four points above the drop zone.
The 63-year-old refused to answer questions on his future following the defeat at Ewood Park and speculation over his future intensified after his pre-match media briefing on Friday was cancelled.
Liverpool's owners Fenway Sports Group (FSG) have reportedly been looking at their possible options for a managerial change for over a week and they have now decided to act.
They had intended to see out the season with Hodgson before reassessing the situation but recent results - defeats to Blackburn and Wolves - and the deteriorating relationship with fans and associated falling attendances have prompted a rethink.
The club have turned to former player and manager Dalglish to take up the reins for the rest of the campaign and try and rescue a wretched campaign for the Merseyside titans.
Dalglish, who wanted to return as manager before the appointment of Hodgson in the summer, will now take charge of the side for this weekend's FA Cup showdown with arch-rivals Manchester United at Old Trafford.
In a statement on the club's website, the club's principal owner John Henry said: "We are grateful for Roy's efforts over the past six months, but both parties thought it in the best interests of the club that he stand down from his position as team manager.
"We wish him all the best for the future."
SadHodgson admitted he was sad and disappointed to have left Liverpool after conceding the last few months had been some of the most challenging of his career.
"Being asked to manage Liverpool football club was a great privilege," he said.
"Any manager would be honoured to manage a club with such an incredible history, such embedded tradition and such an amazing set of fans.
"Liverpool is one of the great clubs in world football. I have, however, found the last few months some of the most challenging of my career.
"I am very sad not to have been able to put my stamp on the squad, to be given the time to bring new players into the club in this transfer window and to have been able to be part of the rebuilding process at Liverpool.
"The club has some great, world-class players, with whom it has been a pleasure to work and I wish the entire squad well for the rest of the season.
"I thank those with whom I have built up a close working relationship at the club for their loyalty and support during very testing times, and finally of course to the Liverpool fans, your passion and dedication to the club will see Liverpool at the top of the game once more."
DelightedHenry believes Dalglish is the right man to take charge of the club at such a difficult time.
"We are delighted that Kenny Dalglish has agreed to step in and manage the team for Sunday's FA Cup tie at Old Trafford and for the remainder of the season," added Henry.
"Kenny was not just a legendary footballer, he was the third of our three most successful managers - three giants. We are extraordinarily fortunate and grateful that he has decided to step in during the middle of this season."
Chairman Tom Werner said: "No one who cares for this great club has been happy with the way this season has unfolded and we have examined options and considered at length what is best for us going forward.
"Kenny will bring considerable experience to the position and provide management and leadership for the rest of the season."