Monaco's vice president and general manager of the club Vadim Vasilyev revealed on Tuesday that Ranieri, who took over in 2012, will leave the big spending French club.
Ranieri was credited with guiding Monaco back to Ligue and lifting them to second place in their first season back.
The club's Russian owner gave Ranieri bags of cash, which he spent on the likes of Radamel Falcao and Dmitar Berbatov, but they were unable to pip fellow big spenders PSG to the title.
But an automatic place in the Champions League was seen as a good achievement for Ranieri, however the owners wanted more.
They were unhappy at the shock defeat in the semi-final of the French cup at the hands of Guingamp.
"We have taken the decision to go our separate ways, but I want to pay tribute to Claudio. He really has done good work," Vasilyev told reporters on Tuesday.
"It was a difficult decision, but at this stage of our project, we needed to bring in new momentum. It's not the sporting or human aspect of things. I respect Ranieri his work a lot. The only thing, the Coupe de France defeat."
The club were keeping quiet on who they have lined up to replace Ranieri.
"I can't confirm the new coach. There are still some details to be worked out. That's not the subject. We want a more attacking game, to give even more pleasure to our fans. That's the ambition of the club," said Vasilyev.