Celades was brought in to replace Marcelino Garcia last September and helped Valencia top their UEFA Champions League group that included the likes of Chelsea, Ajax Amsterdam and Lille.
But things have turned out for the worse since, with Valencia winning just two of their last 13 games in all competitions.
They were humiliated 8-4 on aggregate by Atalanta in the Champions League round of 16 stage and have won just one of their five games since the La Liga season resumed after the coronavirus-enforced break.
Celades will be replaced by the club’s assistant coach Voro Gonzalez until the end of the season.
A club statement read: “Valencia CF have communicated to Albert Celades his removal from his position as first-team coach, with immediate effect.
“The club wish to thank him publicly for his work and dedication during his time at the club – a period in which we achieved qualification for the knockout stages of the Champions League and important victories at grounds where we had previously not won.
“The club also value his help and contribution since he took over as coach of the first team in a moment of difficulty, and wish him every success in his future endeavours. From Tuesday, Voro González will take charge of the first team on a provisional basis through to the end of the present season.”
Valencia are currently eighth on the La Liga table, eight points behind fourth-placed Sevilla.
