The Dutchman, 47, guided the Reds to their 20th league title in his debut season but they have struggled during his second year, finishing fifth in the Premier League.
Recently departed Bournemouth boss Andoni Iraola is the leading contender to replace Slot.
"That this was a difficult decision for us to make as a club goes without saying. The contribution Arne has made to Liverpool FC in the time that he has been with us has been significant, meaningful and - most importantly of all to supporters and ourselves - successful," Liverpool's owners Fenway Sports Group (FSG) said in a statement.
"As such, our appreciation for everything he has achieved could not be greater, particularly as it was underpinned by a work ethic, a diligence and a level of expertise which further underlined our view that he is a leader in his field.
"From the moment that we first encountered Arne, it was immediately clear that he is an individual who does not merely accept responsibility, he embraces it."
The decision was made by Michael Edwards, FSG's chief executive, and Richard Hughes, Liverpool's sporting director.
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Throughout the season, Liverpool insisted that a change of head coach was not on the agenda, but after assessing the situation following the end of the season last weekend, the club's hierarchy believe the next phase requires a more front-foot, aggressive and urgent style of football.
Slot replaced Jurgen Klopp as Liverpool boss in 2024 after the German stepped down at Anfield after nine years as manager.
Earlier this month, forward Mohamed Salah said the club must return to being a "heavy metal attacking team that opponents fear" after "crumbling" to a defeat at Aston Villa.
Much of Liverpool's success under Klopp - where they won every major trophy - came through this style of play.
"The conclusion we have come to is built on a belief that the team's trajectory is best addressed through a change of direction. That does not diminish the work Arne has done here, or the respect we have for him. Nor is it a reflection of his talents. Rather, it is indicative of the need for a different approach," the statement added.
"Arne leaves with our gratitude, with a Premier League title to his name, and with the knowledge that he and his family will always be welcomed back at Anfield."