Puel, took Southampton to a respectable eighth-place finish in the table and to the League Cup final.
Puel, 55, took Southampton to a respectable eighth-place finish in the table and to the League Cup final where they were defeated by Manchester United.
"Southampton Football Club can today confirm that it has terminated the contract of Claude Puel with immediate effect," said a club statement.
Puel, a former Monaco, Lille, Lyon and Nice coach, was booed by his own fans when visitors Stoke City won 1-0 at St Mary's on the final day of the Premier League season in May.
Officials at Southampton had already revealed plans to review the Frenchman's future and Puel's cause was not helped by his side's failure to score for a fifth straight home match.
"Everyone at Southampton would like to express our thanks to Claude for his hard work and commitment this year. The highlight of the season was a memorable day at Wembley in the League Cup Final, a day our fans will always treasure," added the club.
"We wish Claude well for the future. The search for a new management team is underway. We are confident that we will find the right fit in line with the long term vision of the club."
Puel replaced Ronald Koeman as manager last year when the Dutchman took over at Everton and signed a two-year contract.
Despite Southampton's eighth-place finish, they lost 16 league games and suffered early exits from both the FA Cup and the Europa League.
During the defeat against Stoke, his team's own fans chanted "You don't know what you're doing".
Puel had told reporters before the season ended that he had expected to still be in charge for the 2017/2018 season.
"I came here for a project, to continue this work to improve all these young players," he said.
"Many players have become starting players this year, like Maya Yoshida, Oriol Romeu, Jack Stephens so it's important to continue this role and keep building the future of Southampton."
"There were European games, cup games, with quality. We reached the final at Wembley against Manchester United and we've also improved many players."
"So it has surprised me to see and read all this speculation in particular."
Former Borussia Dortmund boss Thomas Tuchel and ex-Alaves coach Mauricio Pellegrino have both been linked with the job while Jaap Stam is also another reported contender after guiding Reading to the second-tier Championship play-off final.