The decision was taken at a board meeting brought forward to Friday following the side's surprise elimination from the UEFA Cup at the hands of Steaua Bucharest.
"We have decided to replace Claudio Ranieri as sporting director and coach of Valencia football club," Valencia president Juan Bautista told a news conference at the Mestalla.
"We understand, and he too understands, that the results of the club in the last few weeks have not been the most appropriate and have had the effect of distancing us from the objectives we set ourselves at the start of the season."
Soler said that former assistant Antonio Lopez, who worked alongside Rafa Benitez when he was in charge at Valencia, would take over as the new coach.
Valencia, who won both the UEFA Cup and the Spanish title last season, let slip a 2-0 first-leg lead to end up losing on penalties to former European champions Steaua on Thursday.
Ranieri's future was already in the balance following his side's miserable run of form in the league, causing them to slip to sixth place in the standings after a six-game winless run.
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