Newcastle United say manager Rafael Benitez will leave the club when his contract expires on 30 June.
The Magpies finished 13th in the Premier League last season as Spaniard Benitez, who took over in March 2016, secured the club's top-flight status.
"We have worked hard to extend Rafa's contract over a significant period of time," said a Newcastle statement.
"However, it has not been - and will not be - possible to reach an agreement with Rafa and his representatives."
The statement added: "The process to appoint a successor will now begin."
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Newcastle legend Alan Shearer described the situation as a "shambles" on social media and praised the work of Benitez.
"A world-class manager. A manager who performed so well in very difficult circumstances. A manager who understood the fans. Thanks and good luck Rafa Benitez, you were brilliant for the Toon," he said.
There has been continued speculation about his future prior to the club announcing his departure, with Benitez receiving a £12m-a-year offer to take over as manager at Chinese Super League club Dalian Yifang.
Former Valencia, Liverpool and Real Madrid boss Benitez's coaching staff of Paco de Míguel Moreno, Antonio Gomez Perez and Mikel Antia will also leave the club on 30 June.
Newcastle appointed Benitez as successor to Steve McClaren with the club one point from Premier League safety with 10 games left in the 2015-2016 campaign.
The 59-year-old could not prevent the St James' Park club from being relegated but they won the 2016-17 Championship title to secure an immediate return.
Newcastle finished 10th in their first season back in the Premier League and 13th last season.
"We would like to thank Rafa and his coaching team for their efforts over the last three years and their significant contribution to what has been collectively achieved," the statement added.
"We would also like to thank our supporters, players and staff for their patience during a period of uncertainty."
There has been talk of Newcastle owner Mike Ashley being in talks to sell the club to United Arab Emirates billionaire Sheikh Khaled bin Zayed Al Nahyan's investment group this summer.
Ex-Newcastle midfielder Chris Waddle was critical of Ashley on BBC Radio 5 live, saying: "The problem for Mike Ashley is that he never communicates with the fans and that frustrates them more than anything.
"It doesn't look like he wants to tell anyone what's going on. If that's his way, then it's the wrong way in my eyes. He makes one statement every two or three years and it's not good enough."
BBC Sport understands Benitez's departure does not affect the proposed takeover.
Former Swansea boss Garry Monk and current Manchester City assistant manager Mikel Arteta are among the early favourites to replace Benitez, while one bookmaker has already paid out on Newcastle to be relegated next season.
|Benitez's record at Newcastle United|
Phil McNulty, BBC Sport chief football writer
Newcastle United's supporters will feel devastated and betrayed once more after confirmation that Rafael Benitez is leaving St James' Park.
The gap between Benitez's demands on control, budget, transfer strategy and infrastructure and owner Mike Ashley's strict policy on the running of the club simply could not be bridged, as seemed increasingly obvious in the final weeks of the season.
In many respects this is a battle no-one wins.
Benitez will currently struggle to find a club that fits his stature as a Champions League winner with Liverpool, a Europa League winner with Chelsea and a manager treated as the saviour of Newcastle United by supporters who revered the Spaniard.
He has a lucrative offer on the table from Chinese Super League Club Dalian Yifang - but is this really what he has in mind at this stage of his career?
Ashley will not win as it seems impossible he will find a successor who comes anywhere near Benitez's success, experience and expertise - although this may not concern him as his sole victory is seemingly keeping Newcastle United in the Premier League until the club can be sold.
And, once again, the biggest losers will be the long-suffering fans of Newcastle United as they lose a manager they loved and see their club plunged into crisis once more.