|Former Fulham boss Hodgson had been under pressure after a series of humiliating defeats [EPA]
Liverpool ended the painful six-month reign of manager Roy Hodgson and installed fans' favourite Kenny Dalglish as caretaker in a bid to restore harmony and arrest an alarming decline in form.
Hodgson, who joined Liverpool from Fulham in July last year, had been under intense pressure after a number of humiliating defeats, culminating in a 3-1 debacle at Blackburn Rovers on Wednesday.
He leaves with the club four points above the relegation zone in 12th place, having won just seven from 20 league games, and on the day before Liverpool travel to arch-rivals Manchester United for an FA Cup third round match.
Liverpool's fans, considered among the most loyal in the game, chanted for his dismissal and swamped radio shows and internet forums with relentless tales of disenchantment and criticism of his selections and tactics.
The return of Dalglish, until the end of the season, will placate those fans but having been out of club management for a decade the appointment of a man who won eight league titles as a player and manager at the club will be seen by some as a desperate gamble.
Hodgson, named manager of the year last season after he helped Fulham reach the final of the Europa League, was told the news on Friday night.
"I have found the last few months some of the most challenging of my career," he said on the club website.
"I am very sad not to have been able to put my stamp on the squad, to be given the time to bring new players into the club in this transfer window and to have been able to be part of the rebuilding process at Liverpool."
Former Liverpool assistant manager and player Phil Thompson said the fan pressure made Hodgson's position almost impossible.
"It's been extremely difficult times, especially since the Wolves game at Anfield," he told Sky Sports
"It's been very difficult for Roy to carry on. I've been there with Gerard Houllier at the end and it's not nice."
In a statement on the website club owner John Henry said: "Both parties thought it in the best interests of the club that he stand down."
The League Manager's Association issued a statement saying that Hodgson had wanted to continue in the job.
|John Henry said Dalglish was a third 'giant' after former bosses Bob Paisley and Bill Shankly [GALLO/GETTY]
"He has not walked away, he was happy to carry on but at 8pm last night he received the news from the owners no longer wanted him to continue," the statement said.
"It wasn't a surprise but it was disappointing and upsetting news," said Hodgson, who was involved in negotiations with the club over the terms of his departure until 0300 GMT on Saturday.
Looking ahead to Dalglish's arrival, Henry said: "Kenny was not just a legendary footballer, he was the third of our three most successful managers – three giants.
"We are extraordinarily fortunate and grateful that he has decided to step in during the middle of this season."
Dalglish was in charge when Liverpool claimed the last of their 18 English league championships in 1990.
He left in 1991 and had spells at Blackburn Rovers, where he won the league title again, Newcastle United and Celtic.
He returned to Liverpool as a club ambassador in 2009 but has not managed a team since leaving Celtic in 2000.