The club were relegated from the Premier League last season, and will join Oxford United in Sky Bet Championship for the 2025/26 campaign.
Former Manchester United and Real Madrid striker van Nistelrooy was appointed Foxes manager in November last year, but was unable to stop the club from being relegated in April.
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The Foxes said in a statement: “Leicester City Football Club and Ruud van Nistelrooy have mutually agreed that Ruud’s contract with the club as first team manager will terminate with immediate effect.
“Ruud has overseen a challenging period for the club. From his appointment in November 2024, he approached the role with professionalism, integrity and a clear commitment to our aims, including through the integration of several promising players from the club’s academy into our first team environment.
“Ruud moves on with the respect and thanks of everyone at the football club for his dedication and hard work, and with our very best wishes for the future.”
The former striker told the Foxes website: “I would like to personally thank the Leicester City players, coaches, academy and all the staff I have worked with for their professionalism and dedication during my time at the club and to thank the fans for their support, and take this opportunity to wish the club well for the future.”
The U’s welcome the Foxes to the Kassam Stadium on September 13, with the return fixture, a first United trip to the King Power Stadium, on January 24.