The club announced the news shortly after the loss:
Joint-chairman David Sullivan thanked the tactician for his work and explained why the decision was made before the turn of the year:
"It is with great disappointment that we've had to make this decision. Manuel is a gentleman and it has been a real pleasure to work with someone of his calibre.
"However, it has become clear that that a change is required to get the club back on track in line with our ambitions this season. We felt it was necessary to act now in order to give the new manager as much time as possible to try and achieve that goal."
Saturday's loss to the Foxes kept the Hammers in 17th place, just one point above the relegation zone. The poor showing in front of the home fans continued a trend:
Pellegrini's fate had seemingly been hanging by a thread for weeks, and while a shock win away to Chelsea on November 30 bought him some time, four more losses in the next five matches put the Hammers in a deep hole.
The Chilean joined the east London club in 2018 after a spell with Hebei China Fortune. He guided West Ham to 10th place in the Premier League during his first season, but a major regression has hit the side.
Pellegrini previously won the Premier League title with Manchester City in the 2013-14 season.
Pr BBC Sport, it's unclear who will manage the team when the Hammers face fellow Premier League strugglers Bournemouth on New Year's Day.