Owner Merritt Paulson made the separation official in a press conference, citing "fundamental philosophical differences".
"John’s charisma is second to none and we could not have asked for a better ambassador for the game of soccer as we made our launch into MLS," Paulson said. "We had a terrific record last year as an expansion team under John and he provided us with some amazing moments and memories that will forever be a positive part of our MLS history."
Rumors swirled in June that Spencer's was on the line against the Seattle Sounders. Portland won, 2-1, but beating the Cascadia rival only allayed Spencer's tenure for two more losses. Between 3-0 defeats to the Colorado Rapids and Real Salt Lake, the Timbers posted a surprise win over the league-leading San Jose Earthquakes.
General manager Gavin Wilkinson will take over as an interim manager.
"Gavin will assist me in locating a permanent head coaching replacement, who will likely be announced sometime this offseason," Paulson said. "He does not have sights on the long-term coaching job."
Portland collected 19 points from 17 games in 2012 under Spencer, pitting it eighth in the Western Conference. The club hasn't won a road game all season.
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