The Elland Road outfit are currently in 10th place in The Championship, but are only three points adrift of the playoff berths.
The news was released on the club’s official website, with chief executive Shaun Harvey keen to enforce a change in manager.
“We have 18 games to go this season and are still within touching distance of the Play-Offs, but felt with the transfer window now closed we needed to make the change at this time in the belief that a new managerial team will be able to get more out of the existing squad of players and make the difference.
“Simon and his staff have given the club over three good years service and we would like to place on record our thanks and wish them all the best for the future.
“Current youth team manager Neil Redfearn has been asked to take temporary charge of the first team until a new manager is available,” the statement concluded.
Grayson had taken over at Leeds back in December 2008, and despite leading the side back to The Championship, fell short of making it back to the top flight.
By Gareth McKnight