Popularly known as the AmaKhosi (Chiefs), the Johannesburg club won a record 53 domestic titles from its formation in 1970 until 2016, but none since.
As the 2022 season nears its conclusion, Chiefs will finish without a trophy again and 68-year-old Baxter has paid the price after 11 months in charge.
"After a series of meetings, Kaizer Chiefs and coach Stuart Baxter have come to a mutual agreement of an early termination of his contract," a club statement said.
"Assistant coaches Arthur Zwane and Dillon Sheppard will take charge of the senior team for the remainder of the season."
Chiefs fell at the first hurdle in the two cup competitions and lie fourth in the league, 18 points behind leaders Mamelodi Sundowns, who are on the verge of sealing a fifth straight title.
The club, who attract 90,000 crowds when they play fierce rivals Orlando Pirates, have been particularly poor since the season resumed in February after a lengthy mid-season break.
Chiefs have won only three of eight league and cup matches, lost three and drawn two. All the victories came away, all the losses at home, and the team scored only six goals for a 0.75 match average.
Baxter had a successful previous spell at Chiefs between 2012 and 2015, winning the league twice and two cup competitions. He also coached South Africa twice with moderate success.
Apart from not delivering any silverware in his second stint at Chiefs, Baxter has come under fire from supporters complaining about the negative style deployed by a club famed for its entertaining approach.
The exit of Baxter marks the continuation of a firing frenzy among top-flight clubs with AmaZulu, SuperSport United and Golden Arrows dumping under-performing coaches.
AmaZulu sacked former Porto forward Benni McCarthy after he failed to match his spectacular showing of last season when the perennial strugglers finished runners-up behind Sundowns.
SuperSport ditched ex-Zimbabwe captain Kaitano Tembo, who had been at the Pretoria club 23 years as a player, and a coach in various roles.
Another former national team captain, Lehlohonolo Seema of Lesotho, was axed after Arrows were humiliated 6-0 away to Sundowns.
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