Jose Mourinho and Chelsea had to go their separate ways because the deteriorating relationship between coach and club was adversely affecting the team's performances, said a Chelsea statement on Thursday.
Mourinho led Chelsea to two consecutive premier league titles.
"The reason the decision has been taken is that we believed the breakdown started to impact on the performance of the team, " said Chelsea.
"Recent results supported this view. We did not want this to continue or affect the club further."
The club stunned the football world when they announced early in the day: "Chelsea Football Club and Jose Mourinho have agreed to part company today by mutual consent."
Chelsea have made a stuttering start to the English Premier League season, lying in fifth place, and play champions Manchester United on Sunday.
Further disappointment has followed in the European Champions League with a 1-1 home draw against Norwegian side Rosenborg in their opening group match on Tuesday in what turned out to be Mourinho's last match in charge.
Later on Thursday, the Chelsea Web site revealed that Israeli Avram Grant would take charge at Stamford Bridge, assisted by current number two Steve Clarke.
There was no indication whether the appointments would be permanent.
"The club is delighted that in Avram we have an experienced man who can come in immediately at this difficult time to deliver our objectives," a statement read.