The Dutchman, who took charge in 2008, had been replaced by Greece under-21 coach Nikos Nioplias, the Greek Super League club said.
The news came as a shock as Ten Cate had guided the Athens club to 10 victories in 13 league games this season, putting them one point behind defending champions and arch-rivals Olympiakos, who lead the table.
"Panathinaikos announces that following a meeting between the chairman, Mr. Nikolaos Pateras, and the coach of the team, Henk ten Cate, they have agreed to end the collaboration," the club said in a brief statement on their website.
Despite the club's encouraging form as they fought to win a first league title since 2004, Ten Cate was criticised by sections of the Pana supporters and the media for his perceived tinkering with players and formations.
"It was an honour for me to coach Panathinaikos and the results we had backed up my work," Ten Cate, 54, said in a statement.
"I have laid the foundations for the team. I respect the fact that certain people cannot be pleased with the complete picture but myself and the staff gave everything to be successful. The decision of the chairman will not influence the friendship we developed."
Nioplias, who will have former Pana striker Krzysztof Warzycha as his assistant, has enjoyed success in his role with the Greece under-21 team, leading them to the top of the European Championship qualifying Group Nine standings where they lead England by two points.
"It is a great honour for me to take over at Panathinaikos," he said. "We are starting work from today and my aim is to achieve with the team as a coach what I have achieved as a player: win titles."
