Merrick took charge of the Jets in 2017 and led Newcastle to the Grand Final, which they lost to Melbourne Victory, the following year.
However, with Newcastle bottom of the table with just two wins from 11 games this A-League season, they sacked Merrick on Monday.
"During Ernie's tenure, the club reached its first Grand Final in more than 10 years and we're grateful for his contribution during his two and a half years in Newcastle," Jets chief executive Lawrie McKinna said in a statement.
"However, results and performances haven't been good enough this season and a change was needed.
"On behalf of everyone at the club, I wish Ernie all the best in his future endeavours."
Newcastle's move comes one day after the Jets were thrashed 4-0 by Merrick's former club, Melbourne Victory.
Craig Deans, the club's W-League head coach, and A-League assistant Qiang Li will take interim charge of the Jets.
The Jets, who have conceded a league-high 25 goals this season, host Sydney FC on Friday.