The decision came after Red Star lost 2-1 at promoted Metalac Kragujevac on Saturday, only their second league defeat of the season.
"Ratko Dostanic has been named as Petrovic's successor unanimously and he will continue to run the youth section along with the first team," the statement said.
It will be Dostanic's second spell in charge of Red Star's first team, after he helped them to second place in the league behind traditional city rivals Partizan in 2005.
Petrovic, a former Arsenal midfielder who won five Yugoslav league titles with Red Star as a player and was the assistant manager when they won the European Cup in 1991, enjoyed the fans' support in what has so far been a good domestic season.
His dismissal came as a surprise with Red Star on course to take the league and Cup double from Partizan after both teams had also reached the Serbian Cup semi-finals.
Partizan, aiming for an unprecedented third successive double, trimmed Red Star lead to two points in their two-horse title race with Saturday's 3-0 win over neighbours Cukaricki.
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