Sky Sports News reports that chairman Farhad Moshiri met Allardyce early on Wednesday morning and told him his six-month reign had come to an end. The decision comes following an Everton board meeting on Tuesday.
Allardyce will be paid the vast majority of the final 12 months of his contract, estimated to be around £6m.
Deputy CEO of Everton, Denise Barrett-Baxendale, said: “On behalf of the Chairman, Board of Directors and Mr Moshiri, I’d like to thank Sam for the job he has done at Everton over the last seven months.
“Sam was brought in at a challenging time last season to provide us with some stability and we are grateful to him for doing that.
“However, we have made the decision that, as part of our longer-term plan, we will be appointing a new manager this summer and will be commencing this process immediately.
“Again, we’d like to place on record our sincere thanks to Sam for his work with us over the last few months and wish him well for the future.”
The 63-year-old secured an eighth-placed finish for Everton in the Premier League after just two defeats in their final nine matches.
When asked about his future on Monday, Allardyce told Sky Sports News: “It’s my job to turn that around. My job is to get better results for Everton, get better players, and play better. Then those fans enjoy their football a little bit more than they are at the moment.