The club sit one from bottom in England's top-flight with nine points from 16 games after Saturday's 2-1 home defeat to fellow strugglers Ipswich - Wolves' fourth consecutive loss.Â
Emotions spilled over at full-time as Rayan Ait-Nouri was shown a second yellow card and Matheus Cunha also had to be restrained.
O'Neil was appointed in August 2023 following the departure of Julen Lopetegui and signed a new four-year deal with the club in August this year.
In a statement on the club website on Sunday, Wolves chairman Jeff Shi said: "We're very grateful to Gary for all of his effort, dedication and hard work during his time at the club, and we wish him and his team the best of luck for the future."
Former Manchester United manager Ole Gunnar Solskjaer, who was at Molineux on Saturday as a guest of Ipswich boss Kieran McKenna, is the early favourite with bookmakers to take over.
Portuguese boss Vitor Pereira - currently working for Al Shabab in Saudi Arabia - has also been linked with the role.
Wolves finished 14th in O'Neil's first season at the club but they've found themselves in a relegation scrap this year.
Frustrations also boiled over in Monday night's defeat to West Ham when Mario Lemina scuffled with Jarrod Bowen after the full-time whistle, resulting in the Wolves midfielder being stripped of the captaincy.
Wanderers were then beaten by Jack Taylor's stoppage-time header on Saturday having taken an early lead through Matt Doherty's own goal and following the full-time scuffles, O'Neil said his players needed to "take some responsibility".
"We deal with things like that very, very seriously, as you saw last week," O'Neil said.
"It's annoying in that we've got enough to do at this moment in time, we've got enough to fix. So the players do need to take some responsibility."
O'Neil also expressed frustration with the goals his side conceded, calling the first "unacceptable" for the ease with which Liam Delap barged past Nelson Semedo before crossing, then claiming his players had swapped assignments to allow Taylor the space to score the winner.
"The set-play goal, I would happily take responsibility for it if the players were stood in the right place," he said.
"For some reason two of them have decided to change roles very late on in the game. I'm 100 per cent confident if they were in the right spot our player heads it away.
"That's the players' decision-making under stress. Players will change things around and try and find fixes all the time but that's a real poor decision from them in an important moment."
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