The Hammers made the announcement on their official website.
The defeat was West Ham’s ninth loss in the past 12 games.
The Hammers’ latest defeat on Saturday leaves them 17th, one point above the Premier League relegation zone.
Pellegrini departs after 18 months in charge, having been appointed in May 2018 on a three-year deal.
Commenting on Pellegrini’s sack, David Sullivan, joint-chairman of West Ham said: “It is with great disappointment that we’ve had to make this decision.
“It has become clear that a change is required to get the club back on track in line with our ambitions this season.
“We felt it was necessary to act now in order to give the new manager as much time as possible to try and achieve that goal.”
West Ham entertain Bournemouth on January 1st but the club are yet to announce who will take charge of the game.
Pellegrini led them to 10th last season but becomes the sixth Premier League manager to lose his job this campaign.
As well as their poor form in the league, West Ham were also knocked out of the Carabao Cup by League One side Oxford United, losing 4-0 in September.
West Ham won 24 of their 64 matches under the Chilean, losing 29.
The Hammers have broken their transfer record twice under Pellegrini, paying £36m for Brazil winger Felipe Anderson in 2018 before a £45m deal for French striker Sebastien Haller in July as part of a £71m summer spend.
While the former Manchester City boss was in charge of the London club they have spent £155m.
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