"Fenway Sports Group (FSG) and Liverpool Football Club announced that Kenny Dalglish is to leave his post today as manager after having his contract terminated," the club said in a statement on their website (www.liverpoolfc.tv).
"After a careful and deliberative review of the season, the club came to the decision that a change was appropriate. It is not a decision that was reached lightly or hastily."
Liverpool, despite winning the League Cup -- their first trophy since 2006 -- and reaching the FA Cup final, could only finish eighth in the Premier League this season.
"It has been an honour and a privilege to have had the chance to come back to Liverpool Football Club as manager," said Dalglish.
"Of course I am disappointed with results in the league, but I would not have swapped the Carling (League) Cup win for anything as I know how much it meant to our fans and the club to be back winning trophies."
As a Liverpool player, Dalglish won numerous honours, including six English league titles and three European Cup trophies.
In his first spell in charge between 1985 and 1991 he won three league titles and two FA Cups.
Dalglish, 61, returned to the club to replace Roy Hodgson in January 2011 in a caretaker capacity with Liverpool 12th in the standings and four points above relegation.
He led them to sixth place last year and signed a three-year contract in May 2011.
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