The second tier club are 21st in the 24 team standings, ahead of Millwall and Bolton Wanderers only on goal difference after 20 matches.
Clement joined Reading in March after Dutchman Jaap Stam was sacked, with the club in 20th place, and helped them avoid relegation on the last day of the season.
"Following five wins in the first 22 league and cup matches of 2018-19, owners Mr Yongge Dai and Ms Xiu Li Dai have made the difficult decision that the time is now right to make a change," the Chinese-owned club said in a statement.
It said chief executive Nigel Howe would appoint a new manager "who will fit the Reading mould, build a team which can deliver performances and results that will help us climb the Championship table and lead the club towards promotion".
(Reporting by Alan Baldwin, editing by Toby Davis)
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