The club confirmed this morning that Clarke, who took charge in December 2014, would be leaving the club along with assistant Kevin Keen.
The Royals have won just once in eight games and slipped to ninth in the Championship table following last night?s (Thursday) 1-0 home defeat to QPR.
Clarke, who turned down the chance to take over at Fulham last month, presided over 53 games, winning 19, drawing 14 and losing 20.
In a statement, the club said: ?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.
?Following Thursday night?s defeat, added to a recent run of poor form, the board feel that a change in manager is now necessary.
?The board are committed to taking this club forward and will immediately begin the recruitment process in search of a new manager.?
During Clarke?s first season, Reading finished 19th in the Championship and reached the semi-finals of the FA Cup, losing to eventual winners Arsenal. Former Leicester boss Nigel Pearson is favourite to succeed Clarke.
Under 21s manager Martin Kuhl will take temporary charge of the team while the club looks for a new manager and took at Hogwood Park this morning.