"Head coach Domenico Tedesco and assistant coach Peter Perchtold have been relieved of their duties with immediate effect," Schalke said in a statement.
Interim coach Huub Stevens will take charge of the team for Saturday's league game against RB Leipzig.
"He (Tedesco) developed the side very well last season that ended with us finishing runners-up," sporting director Jochen Schneider said.
"However, we can’t fail to recognise that the development this season has been negative."
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(Reporting by Andrew Downie, editing by Ed Osmond)
