The 60-year-old has been relieved of his duties with the Turkish club following a disappointing start to the campaign
The 60-year-old, who recently took charge of the Turkey national team, was relieved of his duties following a disappointing start to the campaign in his third stint as coach of the club.
Gala president Unal Aysal had previously revealed his concern about Terim's refusal to accept a two-year deal with the Turkish outfit in conjunction with his venture with the country's national team.
"After Fatih Terim's rejection of our two-year contract offer, the Galatasaray board have been obligated to find new solutions," a club statement said.
"All these developments regarding this issue were harmful to our club and its values. Our board have a responsibility to preserve these values and transmit them to future generations.
"By force of this responsibility, in order to prevent our club from getting damaged more, the Galatasaray board decided to terminate Fatih Terim's contract.
"We thank Fatih Terim for his contributions and we would like everyone to know that we will be proud of his future achievements with Turkish national team."
Terim oversaw the signings of Didier Drogba and Wesley Sneijder which have so far yielded mixed results, given the expenditure on both players.
Gala have taken six points from four league games and suffered a 6-1 hammering in their Champions League Group B opener against Real Madrid at home, with Cristiano Ronaldo scoring a hat-trick.
Former Manchester City manager Roberto Mancini is an early candidate to replace Terim at the Turk Telekom Arena.