The Barclays Premier League club have placed him on gardening leave with immediate effect, with Brian Horton and Steve Parkin taking charge of the first team until further notice.
Hull lost 2-1 at home to Arsenal on Saturday with Nicklas Bendtner scoring a last-gasp winner.
The defeat left the Tigers second bottom of the standings, three points from safety.
"I am obviously very disappointed with the club's decision and the fact that I will now not have the opportunity to secure Hull City's status in the Barclays Premier League for a third consecutive season," Brown said in a statement released through the League Managers Association.
"Although I am extremely sad to be leaving Hull City, I am very proud of my achievements during my time as manager, especially having led the team into the top flight of football for the first time in the club's 104-year history and ahead of schedule.
"It has been a fantastic experience and I would like to offer my sincere thanks to all of the players, past and present, and also to my staff.
"Finally, I would like to thank the fans for their support and wish the club every success in the future."
Chairman Adam Pearson claimed taking such surprising and decisive action with just 10 games of the season remaining was in the best interests of the club.
A statement from Pearson read: "Retention of Premier League status is paramount and the board believes that a change in managerial direction is the correct option at this time.
"The club will keep supporters completely up to date in respect of any managerial appointment but, in the meantime, Brian Horton and Steve Parkin will prepare the team for our important game at Portsmouth next Saturday."
Pearson, who returned to the club for a second spell as chairman last October, has repeatedly warned of the dire financial consequences of relegation.
Hull, under previous chairman Paul Duffen, overspent on player wages in the aftermath of their promotion to Premier League in 2008.
Efforts were made to offload fringe players in the January transfer window but the club, £9million in debt, were unable to make major savings on their wage bill.
It is feared a player cull will be necessary if the Tigers fail to preserve their top-flight status.
Nevertheless, the decision to part company with Brown, the most successful manager in the club's history, comes out of the blue.
Brown was thought to be one game away from the sack at the time of Pearson's return following a poor start to the season but he appeared to have weathered the storm.
A dramatic win over Stoke on November 8 sparked a mini-revival and performances since, if not results, did not suggest the manager had lost the dressing room.
Brown, however, did have to apologise last week after members of the Women's Institute witnessed a public bust-up between team-mates Nick Barmby and Jimmy Bullard during a training exercise close to the Humber Bridge. Hull was Brown's second managerial appointment after failing during a previous spell at Derby.
The former Bolton assistant boss, 50, was appointed in January 2007 having been brought to the club to work under predecessor Phil Parkinson.
He saved the club from relegation to the Championship that year and then gloriously led them to promotion to the top flight for the first time in their history, via the play-offs, 12 months later.
Hull then made a remarkable start to life in the Premier League, taking 20 points from their first nine games, before form deserted them.
The club collected just 15 more points and survived relegation only on the final day of season - an achievement which famously led to Brown singing on the field.
Hull now face a series of critical games in the coming weeks with this weekend's trip to bottom side Portsmouth followed by clashes against Fulham, Stoke and relegation rivals Burnley.
Pearson's statement added: "We would like to place on record our sincere thanks to Phil for the major success achieved during a period of four seasons in charge at the club and wish him every success for the future.
"Promotion to the Premier League in 2008 and retention of our status on the last day of the 2009 season are unique events in the history of Hull City AFC and both were achieved under Phil's stewardship during a period which will never be forgotten by all connected with the club."
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