The former Liverpool and England star joined the Saudi side in July 2023 on two-year deal, which was later extended by another two years.
Al-Ettifaq came sixth under Gerrard last season, having finished in seventh spot before his appointment.
"Gerrard has honoured the club and for that he will never be forgotten. This decision, which we have mutually respected, is in the best interest of both Steven and the club as we move forward," club president Samer Al Mishal said on Thursday.
Al-Ettifaq began the season with three straight wins but then hit a two-month winless slump and two victories in the past two months were not enough to turn things around, with Gerrard saying last week he takes the blame for the drop in form.
"I want to express my gratitude to the club, the players, the fans, and everyone involved for the opportunity and the support during my time here," Gerrard said in a statement on Thursday.
"Overall, I have learned a lot, and it's been a positive experience personally and for my family as well. But football is unpredictable, and sometimes things don't go the way we want."
The 44-year-old guided Rangers to their first Scottish Premiership title in 10 years in 2021 before moving to Aston Villa, where he was sacked after they won two of their first 12 Premier League games in the 2022–23 season.
England and Liverpool midfielder Jordan Henderson joined Al-Ettifaq after Gerrard's appointment but terminated his contract after six months to sign for Ajax Amsterdam.
