Real Madrid president Florentino Perez insisted that Jose Mourinho's departure from the club was a mutual agreement as he looked forward to starting "a new project".
Mourinho will leave the Bernabeu at the end of the season with Chelsea expected to be his next destination and Paris St Germain coach Carlo Ancelotti heavily backed to move to replace the Portuguese.
Mourinho's exit brings to an end a turbulent three seasons at the Real helm which saw them wrest the Primera Division title from rivals Barcelona last season, although they relinquished it this year.
There have also been fall-outs during the current campaign, creating divisions in the dressing room, and after last week's Copa del Rey final defeat by Atletico, Mourinho declared: "This season has been the worst of my life."
It is a sad day, but I wish Mourinho the best. This club will always remember him, he forms part of our history.
That is all now over and Perez chose to look at Mourinho's legacy for Real.
He told a press conference: "I want to inform you all that, after speaking to Jose Mourinho, we have decided to terminate his contract at the end of this season. We both agree that this is the right time.
"It is a sad day, but I wish Mourinho the best. This club will always remember him, he forms part of our history.
"Mourinho has spent more time at this club than any other coach has at the 20 clubs in the Primera Division, which shows it is not easy to last at a club for three years, especially at a club where there is as much pressure as this one.
"Each coach has his own personality, but you cannot doubt his competitive attitude. Has he made mistakes on the odd occasion? Of course, but the level of pressure at this club is not normal.
"On behalf of the board of directors, I would like to thank Jose Mourinho for the work he has done. We have taken an important step forward in a sporting and competitive sense under him, and we wish him luck in the future.''
Mourinho's departure was agreed mutually by coach and club and Perez also confirmed he will receive no compensation payment.
Mourinho will take charge of Real Madrid's final matches of the Primera Division season, away to Real Sociedad on 26 May and at home to Osasuna the following weekend.
"No-one has been sacked, no-one has quit, it was a mutual agreement,'' said Perez.
"It's not an ideal situation that he is leaving, but after three years we both agree it was the right time to end this relationship.
"He believes the best thing is if he leaves the club and I share his reasons.
"It's the right decision to start a new project.''
Speculation will now surround not just Mourinho's eventual destination, with the 50-year-old widely expected to succeed Stamford Bridge interim manager Rafael Benitez, but also his replacement in Madrid.
Ancelotti has been touted as the front runner to become the new coach of Madrid, and admitted on Sunday he had met with his current club's president Nasser Al Khelaifi and director of football Leonardo to inform them of his desire to leave the Ligue 1 champions and join Madrid.
Al Khelaifi confirmed that but reiterated the club want the Italian to see out his contract, which expires in 2014.
Perez said: "A few days ago the president of PSG spoke to one of our directors about the possibility of Carlo Ancelotti leaving the club to join Madrid.
"They told us it was not possible and we respect that.''