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."
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.
Earlier on Wednesday, Allardyce had attended a news conference ahead of that game but gave no hint that his time at the club might be coming to an end.
Indeed, the 53-year-old had spoken at length about his plans for the January transfer window.
However, shortly afterwards, Newcastle announced news of his departure with a statement on their official website.