"Real Madrid C.F. and Carlo Ancelotti have reached an agreement to bring an end to his time as Real Madrid coach. Our club wishes to express its gratitude and appreciation for a man who is a true legend of both Real Madrid and world football," the club statement reads.
It continues: "Carlo Ancelotti has led our team through one of its most successful spells in our 123-year history, lifting more trophies than any other coach in our club's colours: 3 European Cups, 3 Club World Cups, 3 European Super Cups, 2 LaLiga titles, 2 Copas del Rey and 2 Spanish Super Cups, for a total of 15 titles in his six seasons at the helm."
"The Santiago Bernabeu will pay tribute to Carlo Ancelotti tomorrow, at what will be his final game as Real Madrid coach.
"Real Madrid wishes him and all his family the very best of luck in this new chapter of his life."
Club president Florentino Perez added: "Carlo Ancelotti will forever be part of the great Madridista family. We feel incredibly honoured to have had the chance to enjoy a coach who has helped us achieve so much success, but who has also embodied our club's values in such exemplary fashion."
Former player Xabi Alonso is widely expected to take over the role and his appointment is expected to be announced next week.