Sunday's 2-0 defeat at home to Real Betis left the Rojiblancos 10th in the standings heading into La Liga's winter break, while they crashed out of the Copa del Rey last night at the hands of third-tier Albacete.
A club statement on Thursday afternoon read: "Atletico Madrid have agreed to relieve Gregorio Manzano of his duties. The executive committee met on Thursday in Madrid and have taken the decision."
Atletico were knocked out of the cup by Segunda Division B outfit Albacete, Victor Curto scoring the only goal in the first minute to seal a 1-0 win and 3-1 aggregate success.
The club statement continued: "The Atletico Madrid executive committee unanimously decided to dismiss Gregorio Manzano as coach of the first team.
"This decision has been communicated to the technician, with whom an agreement has been reached for the termination of his contract.
"Atletico Madrid also thanked Gregorio Manzano for the work done and wished him well for the future.
"The club will now focus on the hiring of a coach to lead the first team."
Manzano found himself in the firing line following a poor start to the domestic season, but had hoped his side's Europa League success - they qualified for the last 32 as group winners - would appease disgruntled supporters.
The well-travelled 55-year-old was unveiled as Atletico boss for a second time in June, signing a one-year deal having also led the club to a seventh-place finish during in 2003/04.
He has taken charge of 16 clubs in a managerial career dating back to the early 1980s.
Immediately prior to his second stint at the Vicente Calderon, he was in charge at fellow Primera Division outfit Sevilla. He guided the Andalusian club to fifth place and a spot in the Europa League, but was nevertheless told that his contract would not be renewed.