The former Rovers captain, who replaced John McGlynn in the Stark’s Park dugout in the summer of 2012, won silverware by defeating Rangers in the Ramsden’s Cup final last season.
Murray also guided the club to relatively lucrative Scottish Cup campaigns in the past two seasons, reaching consecutive quarter-finals. However, it is understood the Raith hierarchy have been frustrated by their inability to mount a serious challenge for the Championship play-off places, exacerbated by the club’s recent malaise.
Rovers succumbed to a meek 4-0 home defeat by Livingston on Saturday, their fifth consecutive league reverse.
Young, who replaced the late Turnbull Hutton as chairman in December, said candidly: “The results over the last four or five games have not been good enough.
“Obviously the players have had little or nothing to play for, when it became apparent that we would not be participating in the promotion play-offs. But there has been a lack of ambition, work and no signs of moving forward, which has been concerning.
“After a discussion with the rest of the board, a decision was reached that this was the way forward for the club.
“There has been an air of disappointment in the dressing room, the boardroom and among the fans.
“This season has had its high points – but there have been an awful lot of lows.
“When you see players not performing on the pitch then you have to wonder why and we have taken what we felt was the right action.”
Murray’s first-team coach and former team-mate, Laurie Ellis, will take charge of the side for Saturday’s final league match of the season against Dumbarton.
The future of director of football Maurice Malpas remains unclear. However, club sources were last night adamant that he is not a candidate to replace Murray, who was unavailable for comment.