The Scot has left the Madejski Stadium following the Royals' 1-0 defeat at home to QPR on Thursday night.
Clarke held talks with Fulham in mid-November about replacing Kit Symons, a job that still remains available.
Clarke's assistant Kevin Keen has also left the club, with under-21s boss Martin Kuhl placed in temporary charge
A statement on the Royals' website read: "The board of Reading Football Club have this morning relieved manager Steve Clarke of his duties.
"The club met with Steve in person earlier today and we would like to place on permanent record our thanks to him for his hard work and diligence since his appointment in December 2014.
"Following Thursday night's defeat at home to QPR, added to a recent run of poor form which has seen the team pick up just one win in the last eight Sky Bet Championship fixtures, the board feel that a change in manager is now necessary."
During his year in charge Clarke, 52, guided Reading away from relegation trouble and to an FA Cup semi-final, where they were narrowly beaten by Arsenal.
The Royals looked primed for a promotion push after a fine start to this season, but their recent slump has seen them slip to ninth.
In total Clarke presided over 53 games, winning 19, drawing 14 and losing 20.
Source : PA