Owner Roman Abramovich described the decision as "very difficult" and conceded it was a move not taken lightly by the club.
Lampard guided the Blues into the fifth round of the FA Cup on Sunday with a 3-1 win over Luton, but has paid the price for a poor run in the league after £220million was spent on new additions in the summer transfer window.
Thomas Tuchel is understood to be in line to take over at Stamford Bridge. The German coach only became available a month ago when he left Paris St Germain, less than five months after taking them to the Champions League final, which they lost to Bayern Munich.
On the decision to part ways with Lampard, Abramovich said: "This was a very difficult decision for the club, not least because I have an excellent personal relationship with Frank and I have the utmost respect for him.
"He is a man of great integrity and has the highest of work ethics. However, under current circumstances we believe it is best to change managers.
“On behalf of everyone at the club, the board and personally, I would like to thank Frank for his work as head Coach and wish him every success in the future. He is an important icon of this great club and his status here remains undiminished. He will always be warmly welcomed back at Stamford Bridge.”
"The club will be making no further comment until such time as a new Head Coach is appointed.”