The club, currently 11th in the Premier League, said the decision had been reached by “mutual agreement”.
Allardyce, who was in charge for 24 games, said: “I am disappointed to be leaving Newcastle but I wish the club all the best for the future.”
Former captain Alan Shearer has been strongly linked with the post but chairman Chris Mort said: “A new manager has not yet been appointed.”
First team coach Nigel Pearson will take charge of the team for Saturday’s Premier League meeting with Manchester United.
Earlier on Wednesday, Allardyce had attended a news conference ahead of that game but gave no hint that his time at the club might be coming to an end.
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Indeed, the 53-year-old had spoken at length about his plans for the January transfer window.
However, shortly afterwards, Newcastle announced news of his departure with a statement on their official website.
Allardyce took over in May following Glenn Roeder’s resignation but he has come under increasing pressure this season, culminating in a run of three straight league defeats over the festive period.
His last game in charge was a 0-0 draw at Championship Stoke in the FA Cup third round on Sunday.
He becomes the eighth Premier League managerial casualty this season.
