Carlo Ancelotti: Real Madrid manager is sacked
The Italian, 55, led Real to victory in the Spanish Cup before claiming the club?s 10th European Cup last season.
But this year they were knocked out by Juventus in the Champions League semi-finals, while Barcelona won La Liga.
Ancelotti?s side finished second in Spain?s top flight, two points behind Barca, who have reached the Spanish Cup and Champions League finals.
Club president Florentino Perez told a news conference it had ?not been an easy decision? before thanking Ancelotti and adding that a new manager would be appointed ?next week?.
?What did Ancelotti do wrong? I don?t know,? Perez added. ?The demands here at Real Madrid are very high. The affection that the players and the fans have for Carlo is the same as the affection I myself have for him.?
Napoli boss Rafael Benitez is the favourite to take over the vacant role once the Italian season ends.
Real beat city rivals Atletico Madrid 4-1 after extra time in the Champions League final in June 2014 to claim ?La Decima? ? their 10th victory in Europe?s most prestigious club competition.
It was Ancelotti?s third Champions League title as a manager ? he also won it twice with AC Milan, in 2003 and 2007 ? but he leaves Madrid having failed to claim the Spanish title since joining from Paris St-Germain in July 2013.
The former Chelsea boss, whose contract was due to run until the end of next season, also won the Club World Cup in December before Real were knocked out of the Copa del Rey by Atletico in January.
In an interview with Italian newspaper Il Giornale? published on Monday morning, before his departure was announced, Ancelotti said he would take a year off and have back surgery if he left Real.
?I must have a back operation because of spinal stenosis that for some time creates a tingle in my hands,? he said.
?I don?t know how long the period of recovery will be,? he added. ?I can assure you that I?ve had plenty of offers from Italy, England, Germany. I?m sure they will not be lacking from here until next year.?