Former Bayern Munich coach Kovac succeeded Robert Moreno in July 2020 on a three-year deal and finished third in his only full season in charge.
However, Monaco was defeated by Shakhtar Donetsk in the UEFA Champions League qualifying play-off stages in August and is sixth in the French top flight after 19 matches.
The Principality club found a bit of form with three wins in its final four league games of 2021, but confirmed on Sunday (AEDT) that Kovac had been relieved of his duties.
A club statement read: "Monaco announces it has decided to part ways with Niko Kovac. The Croatian coach was informed about this on Thursday [Firday AEDT] in a preliminary interview."
Monaco B boss Stephane Nado will take temporary charge until a replacement for Kovac, who lasted just 74 games in his first job since leaving Bayern, is found.
Club Brugge coach Philippe Clement is the favourite to land the position, while Jesse Marsch, who left RB Leipzig last month, is also a rumoured contender.
Monaco faces Quevilly Rouen in the Coupe de France on Monday (AEDT), with its Ligue 1 campaign restarting on 10 January (AEDT) with a trip to Nantes.