The club, currently 11th in the Premier League, said the decision had been reached "by mutual agreement".
Allardyce, who was in charge for 24 games, said: "I'm disappointed but I wish them all the best for the future. It was a shock, I didn't expect it."
It didn't suprise the bookmakers though who had Allardyce as the short priced favourite to get the sack as reported last week.
Sam Allardyce is a red-hot 8/13 (1.61) favourite with VC Bet to be the next Premier League manager to leave his post after his side's third consecutive defeat at home to Manchester City on Wednesday night.
Neal Wilkins from VC Bet commented: "Allardyce was not Mike Ashley's appointment and Newcastle's current dire form must be huge pressure on his position."
Former captain Alan Shearer has ruled himself out of the running and chairman Chris Mort said: "A new manager has not yet been appointed."
First-team coach Nigel Pearson will take charge of the team for Saturday's Premier League meeting with Manchester United.