Zola was appointed in December after Birmingham sacked Gary Rowett with the club in seventh place in the league and well-positioned to make the promotion playoffs.
"Birmingham City would like to place on record their thanks to Gianfranco for his efforts. The Club will seek to appoint a new manager within the next few days," Birmingham said in a statement.
City are in 20th place, three points above the relegation positions to the third-tier League One with just three games remaining.
Former Chelsea forward Zola previously managed West Ham United and Watford in England but managed just two wins in 24 matches at Birmingham.
The crowd at St Andrews chanted angrily for Zola's dismissal during Monday's defeat and Zola said he did not blame them.
"I am sorry because I came here with a lot of expectations and the results haven't been good. I take full responsibility for that," Zola told a news conference.
"I decided to do this. It is not that I like quitting but I feel like this club deserves the best chance...If I feel I can't help the team it is better that I leave someone else to do that. I feel very sorry...it is very, very disappointing" added the Italian.
Birmingham's next game is against local rivals Aston Villa on Sunday.
(Reporting by Simon Evans, editing by Ed Osmond)
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