Xavi will take charge of the team's final La Liga match on Sunday at Sevilla before departing.
"Barcelona president Joan Laporta has told Xavi Hernandez he will not continue as coach for the 2024-25 season," said Barcelona in a statement.
Former Bayern Munich and Germany coach Hansi Flick is heavily tipped to replace Xavi.
In January, Xavi said he would leave at the end of the season but, after a run of strong form, in April he and president Laporta agreed the coach would stay for the next campaign, with his contract expiring in June 2025.
However, the situation quickly changed with Spanish media reporting Laporta was angered by Xavi's comments suggesting it was hard for the financially-hamstrung club to compete with Real Madrid and other elite European sides.
"Barcelona want to thank Xavi for his work as coach, which adds to his unmatchable career as a player and the captain of the first team, and wish him all the best in the future," continued Barcelona's statement.
"In the coming days, Barcelona will reveal the new coaching structure for the first team staff."
Barcelona won La Liga last season but were not able to successfully defend the title in the current campaign.
They were knocked out of the Champions League in the quarter-finals by Paris Saint-Germain, were hammered by Real Madrid in the Spanish Super Cup final and lost to Athletic Bilbao in the Copa del Rey.
When Xavi, 44, made his U-turn to stay, it appeared he and Barcelona were remaining together in a marriage of convenience.
"It's great news that Xavi is staying," said Laporta on April 25.
"The team we have, that is (still) consolidating, with very young players, needs that stability.
"Xavi is a reference for young players and we can see that -- today I'm especially pleased, and the board have unanimously supported this decision."
Less than a month later Barcelona's tempestuous president changed his mind.
Xavi insisted over the past fortnight he was still looking forward to coaching the club next season and felt he had the confidence of Laporta.
Barcelona's chief appointed Xavi in November 2021 to replace Ronald Koeman, aiming to raise the club back to its pedestal after years of struggle in Europe following their 2015 Champions League triumph.
As a player Xavi made 767 appearances for the Catalan club, behind only Lionel Messi, winning eight La Liga titles and four Champions Leagues among other trophies.
For years Xavi insisted his dream was to coach Barcelona but in January he said the job was "cruel" and took a toll on him mentally.
Xavi's likely replacement Flick, 59, has not coached since Germany sacked him in 2023 after a poor run of results.
Previously Flick steered Bayern to a treble in 2020, including an 8-2 thrashing of Barcelona in the Champions League quarter-finals.
