Rafael Benitez will leave Newcastle when his contract expires on June 30, the Premier League club have confirmed.
The 59-year-old had been in talks over a new deal but will now leave the club after failing to reach an agreement.
Sky sources understand former Chelsea manager Avram Grant is being considered for a role at St James’ Park.
The 64-year-old, who currently works as technical adviser for Indian Super League side NorthEast United, has also managed at Portsmouth, West Ham and the Israeli national side.
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Newcastle confirmed Benitez’s departure in a statement on Monday, which read: “It is with disappointment that we announce manager Rafael Benitez will leave Newcastle United upon the expiry of his contract on 30th June 2019.
“We have worked hard to extend Rafa’s contract over a significant period of time, however it has not been – and will not be – possible to reach an agreement with Rafa and his representatives.
“Rafa’s coaching staff, Paco de Miguel Moreno, Antonio Gomez Perez and Mikel Antia, will also leave the club on 30th June.
“We would like to thank Rafa and his coaching team for their efforts over the last three years and their significant contribution to what has been collectively achieved.
“We would also like to thank our supporters, players and staff for their patience during a period of uncertainty. The process to appoint a successor will now begin.”
Benitez leaves Newcastle after three successful years in charge at St James’ Park.
The Spaniard first took over from Steve McClaren in March 2016, with the club 19th in the Premier League.
He could not save Newcastle from relegation but stayed in charge and guided the club to an immediate return to the Premier League, winning the Sky Bet Championship title.
After overseeing two mid-table finishes since their return to the top flight, Benitez wanted the tools for Newcastle to compete for a European qualification place and potentially lift a domestic trophy.
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However, the former Liverpool and Real Madrid manager has now chosen to leave the club at the end of the month.
Sky sources understand Benitez is increasingly likely to take up a £25m-a-year offer to manage Chinese club Dalian Yifang.
A number of Chinese teams, including Shanghai SIPG and Guangzhou Evergrande, have been interested in Benitez in recent years.
The Spaniard is not allowed to talk to potential suitors until his contract runs out on Sunday.
However, Sky sources understand Benitez would welcome the opportunity to manage Dalian, who are currently 11th in the Chinese Super League.
“Rafa is too big a manager for Newcastle in its current guise and in terms of the way they’re currently run.
“He wants to be pushing Newcastle to win trophies and get into Europe, whereas Newcastle in the last few years and in terms of expenditure want to remain in the Premier League.
“With the exception of Miguel Almiron, the spending has been small; they haven’t been able to compete. That has really irked Rafa. Not only did he want a bit more to spend, he also wanted the freedom to sign older players. Rafa had to work so hard to sign Salomon Rondon on loan