The 61-year-old was predicted to depart after Friday's humiliating 8-2 loss to Bayern Munich in the Champions League quarter-finals.
Setien, who replaced Ernesto Valverde in January, had signed a contract to keep him at the La Liga outfit until the summer of 2022, but leaves after only seven months in charge.
An official club statement on Monday read: "The board of directors have agreed that Quique Setien is no longer the first-team coach.
"This is the first decision within a wider restructuring of the first team which will be agreed between the current technical secretary and the new coach, who will be announced in the coming days."
Setien won 16 of his 25 games in charge of Barca, but it was his five defeats which proved crucial.
Even before Friday's thrashing to Bayern Munich, the Spaniard was under pressure after he failed to stop Real Madrid clinching the league title.
The former Real Betis boss was also unable to lead Barcelona to success in the Copa del Rey, with Athletic Bilbao knocking them out in the quarter-finals.
Netherlands manager Ronald Koeman spent six years as a player at the Nou Camp and is one of the main contenders to replace Setien.
One of the problems for the new manager to solve will be the future of captain Lionel Messi, who will be out of contract next summer.
The Argentinian has so far failed to agree new terms with the only club of his career and - at the age of 33 - could be tempted by a new challenge.
Barcelona last claimed Champions League glory in 2015 and yet feel further away than ever after a season where they went through two coaches amidst issues off the field.
It has been revealed the next presidential elections will not take place until March, with the current board citing the short break between campaigns and the coronavirus pandemic as key reasons behind the decision.
A statement read: "The club will continue to implement the plan to reverse the sporting and economic situation, based on profound changes to the first team, plus a redefined budget to deal with the new situation caused by Covid-19, before the end of the current mandate.
"The holding of the elections from March 15 next year implies that the board of directors assume full responsibility regarding the 2020-2021 financial year."
Goalkeeper Marc Andre ter Stegen will have surgery on his right patellar tendon on Tuesday in another blow, meaning the Germany international may miss the start of the season for Barcelona.
La Liga is set to return on 12 September which gives the Catalan club only a short amount of time to appoint a new manager and start rebuilding an ageing squad.
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