The result leaves the Baggies hovering just two points of the relegation places in the Barclays Premier League.
The Scot, who replaced Roy Hodgson at the Hawthorns, has now paid the price for an alarming slump in the club's fortunes.
Yesterday's defeat means West Brom have only won seven league games out of 34 during the last calendar year - a 20% win percentage yielding a total of only 31 points.
Senior club officials met last night at a hastily-convened board meeting after which they ended Clarke's 18-month tenure.
Joint-Assistant Head Coach Keith Downing will assume control of first-team affairs whilst the club considers all available options for a new manager.
Sporting & Technical Director Richard Garlick said: "We have reluctantly come to the decision to relieve Steve of his duties after very careful consideration.
"It has been well documented that we have not had the rub of the green in certain games this season, but that does not cloud the disappointing points return during this calendar year, culminating in today's defeat at Cardiff.
"This club's track record proves we do not take such decisions lightly, having only enforced a change in this position three times in 14 years.
"But with key games coming thick and fast, we felt it was important we acted now to give the club the best chance of a successful outcome this season.
"Our player wage bill is the highest in the club's history and we feel we have built a squad capable of being very competitive in the Premier League.
"We now begin the search to find a new head coach who will work within our existing structure, which has been in place for the past six years."