Solskjaer spent Wednesday in London holding talks with club officials after Tuesday night's 1-0 home defeat to Middlesbrough had left them in 17th place in the Championship.
The Norwegian joined Cardiff at the start of January but won only five of his 25 league games in charge as the Bluebirds were relegated from the Premier League, and then made a poor start to the new season.
Owner Vincent Tan said: “Ole was hired by Cardiff City on our understanding and belief that he would help us fight relegation from the Premier League. Unfortunately that did not happen.
"After the Club was relegated many people advised me to let him go, but I decided to keep Ole on for the Championship season. Regrettably our recent results do not justify Ole’s continued role as manager at Cardiff.
“Ole has therefore decided to step down and I have accepted this. During my short association with Ole, I have found him to be an honest and hardworking professional, but unfortunately the football results were not in his favour.
"As long as I am the owner of this Club, Ole and his family will always be welcome in the Chairman’s Suite as my guests.
"I wish Ole the very best in his future career in football.
"We now begin the process of finding his replacement and working towards giving all our stakeholders in Cardiff City the results they deserve.
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