New owner Roland Duchatelet axed the popular 44-year-old former Addicks left-back following Sunday's FA Cup quarter-final defeat at Sheffield United, and with the club lying bottom of the Sky Bet Championship.
Duchatelet, who took over at The Valley in January, is reportedly set to appoint Jose Riga, a former coach at Standard Liege - another club owned by the Belgian businessman - as Powell's replacement.
Powell, whose contract was due to expire at the end of the season, revealed last Thursday he had agreed financial terms on a new deal but was awaiting further assurances from the new owner.
Duchatelet said: "We have been working with Chris Powell and his representatives for a couple of weeks to try to agree a contract extension which would have seen us continue to work together.
"There was good progress, but we could not reach an agreement over the club's football strategy going forward
"The situation put a strain on the working relationship between Chris and the board. Therefore I think it is best for all parties that we part ways at this stage.
"I would like to thank Chris for his commitment and hard work over the past three years. The club enjoyed a number of good times under his leadership.
"However, given the club's position in the league and the number of important fixtures upcoming, I felt this difficult decision was unavoidable at this time.
"We will look to quickly appoint a replacement who we feel will give us the best chance of avoiding relegation from the Championship.
"I can assure supporters this was not an easy decision, but it has been made with the club's future in mind. Time will tell if it is the right decision."
Tuesday's news brings a turbulent campaign to an end for Powell, who had to deal with the ownership saga and the state of The Valley pitch which caused a spate of postponements during the winter and leaves them playing catch-up at the foot of the table.
The assurances the former England defender wanted surrounded the new recruitment policy after Charlton sold key men Dale Stephens and Yann Kermorgant in January and replaced them with a host of players on loan from Standard Liege.
Powell has only used those players sparingly since their arrival, for example preferring Ben Hamer in goal to January signing Yohann Thuram-Ulien, which may have tried Duchatelet's patience.
Many Charlton fans are unhappy at the new regime, fearing Charlton will become a feeder club, and are likely to make their feelings known during Wednesday night's home game against Huddersfield.
Powell took over at The Valley in in January 2011 and guided them to the League One title the following season before they finished ninth in the Championship last term.