The news comes just over a month after Pearson successfully guided the Foxes out of the relegation zone at the end of last season.
Leicester’s board issued the following statement, which cited the breakdown of the club’s working relationship with Pearson as the reason for the move.
It said: “The board of directors recognises the success Nigel has helped to bring to Leicester City during his two spells in charge of the club, particularly during the last three and a half years.
“However, it has become clear to the club that fundamental differences in perspective exist between us. Regrettably, the club believes that the working relationship between Nigel and the Board is no longer viable.
“Leicester City’s owners, Vichai and Aiyawatt Srivaddhanaprabha, and the board of directors would like to place on record their thanks to Nigel for the considerable contribution he has made during his time with the club and wish him well in the future.
“Khun Vichai and Khun Top remain wholly committed to the club’s long-term development and to on going investment in a squad that will continue to be competitive in the Premier League.
“We trust that the club’s supporters will recognise that the owners have always acted with the best interests of the Club at heart and with the club’s long-term future as their greatest priority.
“Craig Shakespeare and Steve Walsh will take charge of first team duties while the Club begins its recruitment of a new manager. There will be no further comment until this process has concluded.”
Leicester finished 14th in the Premier League last term, winning seven of their last nine games. They were bottom of the table for over 100 days before a run of four straight wins in April.
The high point of Pearson’s reign would probably have been the club’s memorable 5-3 victory over Manchester United at the King Power Stadium in September 2014.
Pearson has had two spells in charge of the club, his most recent tenure lasting three-and-a-half years, which included a promotion to the top flight in the 2013/14 season.
He divided opinion with his actions after arguing with a supporter at a match and appearing to strangle James McArthur during a Premier League clash with Everton.
Pearson also had a row with a journalist, calling him an ostrich, for which he later apologised. Despite these controversial moments it is believed that the Leicester supporters felt
the man they had at helm was the right person to lead them forward.
The club have taken a different view and believed their relationship with Pearson was no longer viable.