Ancelotti, 65, left the Spanish giants following a rare, trophyless season and has decided to turn his hand to international management with Brazil.
Former player Xabi Alosno is the man who has been tasked with filling the legendary Italian’s shoes and return Real Madrid to the summit of European football.
In an interview with Marca, Ancelotti revealed he and the board decided to call it quits after the Champions League defeat to Arsenal.
Ancelotti said: "Results were not what we expected, and the team’s play wasn’t great either. It was time to do something.
“After the tie against Arsenal, we talked about it and decided. It was something we could see coming. The team wasn’t in good shape and we realised it was best for Real Madrid to look for change and for me to look at Brazil."