The loss in El Clasico on Sunday has Los Blancos drop to ninth in the LaLiga standings, seven points behind the Catalan giants.
Lopetegui was only in charge for 14 matches, which yielded six wins, six losses and two draws.
A statement on the club's website read," The Board of Directors of Real Madrid CF, meeting today October 29, 2018, has agreed to terminate the contract that linked coach Julen Lopetegui with the club.
This decision, adopted from the highest level of responsibility, aims to change the dynamics of the first team, when all the objectives of this season are still achievable.
The Board of Directors understands that there is a great disproportion between the quality of the staff of Real Madrid, which has 8 players nominated for the next Golden Ball, something unprecedented in the history of the club, and the results obtained to date.
The club thanks Julen Lopetegui and all his technical team for their effort and work and wishes them the best in their professional career.
It will be provisionally replaced by Santiago Solari, who will lead the first team starting tomorrow, Tuesday.
According to reports in Spain, former Chelsea manager Antonio Conte is favourite to take over from Lopetegui.