The Dutchman's future has been in question for some time at San Siro and the club have decided to part ways with him and bring in the youth coach as his replacement
Dutchman Seedorf was appointed head coach of the Italian giants in January, replacing Massimiliano Allegri at San Siro.
Despite coming close to securing one of Serie A's Europa League spots, the 38-year-old was expected to be relieved of his duties after coming under criticism from president Silvio Berlusconi and chief executive Adriano Galliani.
On Monday the club confirmed that they have parted ways with the former midfielder, who ended his playing days at Botafogo in Brazil in order to take up the role.
Milan won 11 of his 19 league games in charge - twice as many as his predecessor had managed prior to Seedorf's arrival. He lasted less than six months in the Milan dugout.
Inzaghi, 40, has been named as the new first-team coach after a successful spell at the helm of the Under 19 team.
Via a statement on their official website, Milan revealed that the former striker and club legend has been handed a two-year deal.
"AC Milan communicates to have sacked coach Clarence Seedorf and have entrusted the first team, through June 30, 2016, to Filippo Inzaghi," the statement read.
Inzaghi won two league championships and two Champions League titles as a Milan player between 2001-2012, scoring 126 in 300 games. He earned 57 caps for Italy, winning the World Cup in 2006.
He has no previous experience as a first-team coach.