The Serie A outfit has opted to dismiss the 46-year-old following its disappointing performances this season, with Mauro Tassotti given the temporary reins.
Allegri recently announced that he would leave Milan at the end of the 2013-14 campaign, but the club decided on Monday to relieve him right away following ongoing struggles this term.
With Allegri out of the Giuseppe Meazza, Milan assistant coach Mauro Tassotti has been handed the caretaker reins and thanked the departed coach for his efforts at the club.
The Italian giant said in a press release: "AC Milan have dismissed the coach of the first team and his staff, Massimiliano Allegri, with immediate effect.
"AC Milan would like to thank Mr. Allegri and his staff for the work done and we wish them the best professional success. The team is to be provisionally coached by Mauro Tassotti."
Milan currently sits 11th in Serie A with 22 points from 19 games, having won just five games in the first half of the season, and the San Siro side has consequently opted to dismiss Allegri.
The 46-year-old took charge of Milan in the summer of 2010 and immediately guided the Rossoneri to the Serie A title in his first season at the helm.
However, Milan had to settle for second place the following campaign, while it came in only third last term after selling star players Zlatan Ibrahimovic and Thiago Silva to Paris Saint-Germain at the start of the season.
Milan's slide has continued in 2013-14 as it finds itself fighting against relegation rather than challenging for the Champions League spots, eventually leading to Allegri's exit.
The Livorno-born coach previously was in charge of Aglianese, SPAL, Grosseto, Lecco, Sassuolo and Cagliari.