Caparros had been expected to agree a new deal after securing a respectable 10th-place finish in his first season with the club.
However, the former Sevilla and Athletic Bilbao boss failed to reach an agreement with Levante's board and looks set to leave after a year in charge.
Having enjoyed a succesful end to last season, which included wins over champions Atletico Madrid and local rivals Valencia, the club expressed their regret at not being able to extend his stay at the Estadio Ciudad de Valencia.
"We regret that, despite our efforts to reach an agreement, we have not been able to come up with a solution," read a statement on their website.
"Levante would like to thank Joaquin Caparros and his coaching staff for their professionalism, hard work and dedication during the 2013-14 season."
Caparros was appointed Levante coach in June last year, following the departure of Juan Ignacio Martinez.
