Owner Randy Lerner revealed the Villa Park hierarchy were dissatisfied with the results and lack of confidence displayed by the team throughout this season.
McLeish's side had finished 16th in the Premier League, just two points above the relegation zone, and a statement released by the club confirmed he has been removed from his position.
It read: "Aston Villa can confirm that Alex McLeish's contract has been terminated with immediate effect.
"The club has been disappointed with this season's results, performances and the general message these have sent to our fans.
"The board wishes to assure supporters that we are conscious in every sense that Villa expects and deserves more and we will strive to deliver this."
The 53-year-old held a meeting with the club's owner Randy Lerner and chief executive Paul Faulkner on Monday morning before informing players and staff of the decision.
"We need to be clear and candid with ourselves and with supporters about what we have lacked in recent years," Lerner said. "Compelling play and results that instil a sense of confidence that Villa is on the right track have been plainly absent.
"The most immediate action that we can take is to look carefully at our options in terms of bringing in a new manager who sees the club's potential and embraces our collective expectations."
Over the course of the season, McLeish has frequently been forced to turn to the club's younger players after incurring long-term injuries and illnesses to key first team personnel including Richard Dunne, Darren Bent and captain Stiliyan Petrov.
Despite a final day loss to Norwich City, McLeish had maintained his intentions to remain at the club, which has already begun its preparations for next season with the signing of Australia international Brett Holman from AZ Alkmaar.
"We'd like to thank Alex for his hard work and efforts throughout this tough season," said Faulkner. "We are mindful of the club's need to prepare thoroughly for the new campaign and for the new manager to be able to begin working with the board so that he is quickly immersed in these preparations and also in the long-term objectives of the club.
"Our focus now will be driven by these imperatives and we will update when appropriate."
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