The Northern Irishman only took the job at The City Ground five months ago but has now been dismissed, days after the departure assistant manager Roy Keane.
O'Neill returned to the club where he won the European Cup and made 371 appearances as a player in January after they parted company with Aitor Karanka.
He took over with the club in ninth place and four points off the play-offs but was unable to mount a promotion push as they finished eight points adrift of sixth.
"The club would like to thank Martin for all his efforts during his time at The City Ground and wish him well for the future."
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