The 56-year-old took charge of the English club in January 2014, initially until the end of that season, before agreeing to a two-year contract.
But, due to a poor performance this season, Chester are now 17th in the table and only four points above the relegation zone, with four matched remaining.
A club statement said, "Given the recent extended run of poor form and results we believe this is in the club's best interests,
"As a fan-owned club this has not been an easy decision for us to make.
"We thank Steve for his contribution over the last two years and wish him well for the future."