The former England boss has managed to revive the Toffees' form since his appointment in January and the club finished the Premier League campaign on eighth position.
"On behalf of the chairman, board of directors and Mr Moshiri, I'd like to thank Sam for the job he has done at Everton over the last seven months.", Deputy CEO of Everton, Denise Barrett-Baxendale said to Sky Sports.
"Sam was brought in at a challenging time last season to provide us with some stability and we are grateful to him for doing that.
"However, we have made the decision that, as part of our longer-term plan, we will be appointing a new manager this summer and will be commencing this process immediately.
"Again, we'd like to place on record our sincere thanks to Sam for his work with us over the last few months and wish him well for the future."
Allardyce will receive the majority of the £6m he was about to receive in the final year of his contract.