Louis van Gaal will stay on as Bayern Munich coach for the rest of the season, but will be released from his contract in the summer.
It had been thought the Dutchman would be sacked in the wake of Saturday's 3-1 defeat at Hannover, which followed on closely from losses to Borussia Dortmund in the Bundesliga and Schalke in the DFB-Pokal semi-final.
Bayern slumped to fifth in the table - 19 points behind leaders Dortmund - after the loss and, following a lengthy board meeting on Sunday, the club decided to end Van Gaal's current deal 12 months early, citing a ''difference in opinion about the strategic direction of the club''.
Executive chairman Karl-Heinz Rummenigge added at a press conference: "We are in a situation that concerns us all. We have suffered three defeats in a week which have jeopardised our targets for the season.
"We (the board) had a chat with Louis van Gaal this morning and have analysed our situation together with him. And despite the fact that in a few months we will go down separate paths we are all in agreement that we have the will to work together to achieve our minimum objectives.''
Honorary president Franz Beckenbauer earlier voiced his support for Van Gaal by saying in the Bild newspaper: ''He has made mistakes but in the past has proven to be a great coach. I would prefer him than a short-term solution.''
The decision to maintain their relationship for the time being will enable Van Gaal to guide the club through the remainder of their Champions League campaign. Bayern won the first leg of their last-16 clash with Inter Milan 1-0 with the teams meeting again at the Allianz Arena on March 15.
Bayer Leverkusen boss Jupp Heynckes, who has twice managed Bayern before, has already been linked with the post.
However, Bayer sporting director Rudi Voller said: "It is clear that such rumours would arise. But Jupp knows what he has at Bayer."