The 48-year-old will be replaced by the Jets' youth coach, and former Socceroo, Clayton Zane, who has been appointed as caretaker coach for the rest of the season.
Newcastle sit seventh in the table and suffered a 3-1 defeat against rock-bottom Melbourne Heart on Friday.
The win was the Heart's first in 20 matches and saw the Jets' winless run stretch to four games.
"The Jets and Gary van Egmond have agreed a mutual termination of his contract as head coach effective immediately," the club posted on Twitter on Monday (local time).
Van Egmond was in his second spell in charge of Newcastle, having been reappointed in October 2011.
He led Newcastle to the A-League title in the 2007-08 season.
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