The defeat was Cardiff’s eighth in succession which leaves them in perilous position near the relegation zone.
McCarthy was handed the Cardiff reigns in January this year on a temporary basis but a run of seven wins in his first ten games forced the club’s hierarchy to give him a contract until the summer of 2023.
This season, Cardiff have won just three of their 14 Championship games, losing nine times in total.
McCarthy is joined through the exit door by his assistant Terry Connor.
"Cardiff City Football Club can confirm that First Team Manager Mick McCarthy and Assistant Manager Terry Connor have left the Club by mutual agreement and with immediate effect," Cardiff said in a statement.
"We would like to thank Mick and Terry for their efforts during their time with the Bluebirds and wish them all the best for the future.
"Steve Morison and Tom Ramasut will oversee first-team duties at this time, as the Board of Directors begin the process of appointing a permanent replacement."
Cardiff are back in action next Saturday when they travel to Stoke City.
McCarthy has managed the likes of Sunderland, Wolverhampton Wanderers, Ipswich Town and the Republic of Ireland national team in the past.
