The decision has its roots in the fact Liverpool was 37 points behind the winners Manchester City.
Dalglish was given more than 159 million dollars to spend in the transfer market since he took over from the sacked Roy Hodgson in 2011, AFP reported.
Liverpool’s previous managers like Andy Carroll, Stewart Downing, Jordan Henderson and Charlie Adam also could not work well.
“Fenway Sports Group and Liverpool Football Club announce that Kenny Dalglish is to leave his post today as manager after having his contract terminated,” a joint statement said.
“After a careful and deliberative review of the season the club came to the decision that a change was appropriate. It is not a decision that was reached lightly or hastily. The search for a new manager will begin immediately.”
However, the club win this season League Cup, but Chelsea beat them with ease in the FA Cup final.