Liverpool have terminated the contract of manager Kenny Dalglish, with Wigan's Roberto Martinez favourite to replace him.
Dalglish returned to Liverpool in January 2011 as caretaker under new owners Fenway Sports Group and was then appointed on a three-year permanent deal last summer.
After spending £35million on Andy Carroll, he then invested a further £80million last summer, but Premier League results have been poor and despite a Carling Cup final success, it was their worst league campaign since the 1950s.
The Reds lost the FA Cup final to Chelsea and ended up finishing eighth in the league, below city rivals Everton.
After Dalglish flew to America earlier this week to meet the club's owners, a decision has been made to part ways and it is understood that FSG already have targets in mind.
Sky Sports understands that Wigan boss Martinez is top of their list of targets and the man who turned Aston Villa down last summer could find it hard to shun a switch to Anfield.
Dalglish told the club's official website: "It has been an honour and a privilege to have had the chance to come back to Liverpool Football Club as manager.
"I greatly appreciate the work that Steve, Kevin, the players and all of the staff put in during my time and feel proud that we delivered the club's first trophy in six years winning the Carling Cup and came close to a second trophy in the FA Cup Final.
"Of course 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.
"Whilst I am obviously disappointed to be leaving the football club, I can say that the matter has been handled by the owners and all concerned in an honourable, respectful and dignified way and reflects on the quality of the people involved and their continued desire to move the football club forward in the same way as when they arrived here.
"I would like to thank all of the staff at the club for their effort and loyalty. I said when first approached about coming back as manager that I would always be of help if I can at any time and that offer remains the same.
"Finally, I want to put on record my heartfelt gratitude to Liverpool's fans, who have always given me and the club their unwavering support. Without them neither the club nor I would have achieved anything."
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