Ancelotti, who has been linked with a return to the Premier League as a possible replacement for Unai Emery at Arsenal, suffered a tumultuous last two months with the Italian side.
Despite leading the Partenopei out of Group E, along with European champions Liverpool, their domestic form that sees them languish in seventh, 17 points behind leaders Inter - has seen the veteran tactician lose his job.
Talks of the former AC Milan head coach losing his job began last month when club president Aurelio De Laurentiis to ordered the team to take a week off from training following a third consecutive league defeat.
But this was met with scepticism from Ancelotti and his squad duly refused the notion, resulting in the first-team being slapped with fines amounting to 25% of their monthly wages.
"Napoli has decided to revoke the position of first-team coach from Carlo Ancelotti," the club said in a statement.
"The relationship of friendship, esteem and mutual respect between the club, its president Aurelio De Laurentiis and Carlo Ancelotti remain intact."
The 60-year-old departs with a record of 38 wins, 19 draws and 16 defeats in 73 games with an overall win ratio of 52% since joining the club in May 2018.