The final whistle was greeted with jeers from the home fans at Molineux on Sunday after their 14th loss of the season left Wolves in the relegation zone.
McCarthy, 53, had been in charge of the club since 2006 and guided them back into the Premier League in 2009.
A statement on Wolves’ website read: “Wolves have today announced that manager, Mick McCarthy, has left the club with immediate effect.
“The Board took the difficult decision to terminate Mick’s contract after a run of form which has seen Wolves pick up only 14 points in the last 22 League games, after a promising start to the season, culminating in yesterday’s 5-1 defeat at home to West Bromwich Albion.
“Terry Connor will take charge of team training in the interim until a new manager is appointed.
“The Board would like to place on record their sincere thanks and appreciation to Mick McCarthy and he leaves with the very best wishes of everyone connected to the club.”
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