The 54-year-old was dismissed on Wednesday following a reported falling out with club owner Peter Lim.
The owner has been battling with the club's sporting side for months as Lim has looked for more control over player transfers and sporting decisions.
"Valencia CF have informed Marcelino Garcia Toral of their decision to relieve him of his duties as first team coach, effective as of this Wednesday," the club said in a statement.
"The club wish to thank Marcelino for his hard work and dediction during his time as coach, and wish him the best of success for the future.
"Valencia CF reached an agreement with Alberto Celades on Wednesday, whereby he becomes the new coach of the first team until June 30, 2021. The new coach will direct his first training session this afternoon."
Marcelino was appointed as Valencia boss in May 2017 and led them to a fourth-place finish.
His position came under threat 12 months ago during a difficult start to 2018-19, but the club kept faith in the former Villarreal boss and were rewarded when they ended the season by winning the Copa del Rey final against Barcelona and clinching a Champions League spot.
Valencia have taken four points from three games this term but it was reported in Spain that Lim called club president Anil Murthy for an emergency meeting in Singapore on Wednesday after deciding to sack Marcelino.
Lim, who purchased the club in August 2014, also owns a 40 per cent share in League 2 side Salford City alongside co-owners Phil Neville, Gary Neville, David Beckham, Ryan Giggs, Paul Scholes and Nicky Butt, who each own 10 per cent.
There are also suggestions sporting director Mateu Alemany could be dismissed.
Marcelino's sacking comes at a vital time for Valencia, who are set to visit Barcelona this weekend following the conclusion of the international break.
After that Valencia are set to head to London to face off with Chelsea to start their Champions League campaign.