Paul Le Guen had been odds with Barry Ferguson

Chairman David Murray said: "Having met with Paul it was clear that in the interests of the club we agreed jointly to him stepping down as manager."

The Frenchman had stripped Barry Ferguson of the captaincy after claiming the player was undermining him in the dressing room.

Le Guen was in charge at Ibrox for just seven months and 31 games - the shortest reign in the club's history.

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Le Guen was hugely successful in French football with Lyon, helping them win three successive Ligue 1 titles.

I am disappointed to leave the club, but I think it is the best solution for all concerned Paul Le Guen

However, he struggled to make the transition to the Scottish game.

"We are all clearly disappointed with our current circumstances and will now focus on securing a suitable replacement," added Murray.

"I would like to wish Paul and his management team well in the future."

Le Guen added: "I am disappointed to leave the club, but I think it is the best solution for all concerned.

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"I would like to thank all the people who helped me and my team during my spell in Scotland.

"In particular I would like to thank the directors who at all times gave me their total support."

Barry Ferguson's brother believes the Scotland captain will stay at Rangers following Le Guen's exit.

Derek Ferguson, who also played for Rangers, said: "Hopefully he's going to remain a Rangers player and see out the rest of his three-and-a-half-year contract.

"Barry can look back on being a successful captain.

"The most important thing is that Barry is going to remain a Rangers player."

BBC Scotland football correspondent Chick Young said he believed Scotland coach Ally McCoist was the favourite to succeed Le Guen, with Scotland manager Walter Smith "dovetailing" his commitments in order to groom McCoist for the job.

Reserve-team coach Ian Durrant will take charge of training on Friday before Sunday's Scottish Cup tie against Dunfermline.