The London club dropped to the foot of the second tier over the weekend courtesy of Barnsley's win over Nottigham Forest, and were knocked out of the Cup by League One's Sheffield United at Bramall Lane.
Former Standard Liege boss Jose Riga, currently working within Milan's youth set-up, has been widely tipped to replace the former England left-back, who had been in charge at The Valley since January 2011.
Riga is already well-known by the Charlton hierarchy, with club owner Roland Duchatelet also owning the Jupiler League side.
Duchatelet told the club's official website that talks over a new contract with Powell had broken down, leading to his departure, and that a replacement would be appointed quickly.
"We have been working with Chris Powell and his representatives for a couple of weeks to try and agree a contract extension which would have seen us continue to work together," he said.
"There was good progress, but we could not reach an agreement over the club's football strategy going forward. The situation put a strain on the working relationship between Chris and the board.
"Therefore I think it is best for all parties that we part ways at this stage.
"I would like to thank Chris for his commitment and hard work over the past three years. The club enjoyed a number of good times under his leadership.
"However, given the club's position in the league and the number of important fixtures upcoming, I felt this difficult decision was unavoidable at this time. We will look to quickly appoint a replacement who we feel will give us the best chance of avoiding relegation from the Championship."
A run of five defeats from their last six league games has seen Charlton drop to a perilous position in the Championship, and they are currently four points from safety - however their FA Cup run sees them hold four games in hand over some near rivals.
Powell's replacement, temporary or permanent, is yet to be named though, ahead of Wednesday's league clash with Huddersfield Town.
The former Charlton player's stint in charge was highlighted by their League One title in the 2011-12 season.
