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Yahoo's chief executive Carol Bartz has been fired by the internet company after two-and-a-half years in the top job.
The company said in a statement that Ms Bartz was removed by the board of directors, effective immediately.
Tim Morse, Yahoo's chief financial officer, will take over from Ms Bartz.
Yahoo has been struggling to increase its market share as it faces increased competition from rivals such as Google and Facebook.
Yahoo shares jumped more than 6% in after-hours trading after news of the firing broke, indicating they would trade higher when Wall Street opened for business on Wednesday. Yahoo's stock price was up at $13.72, an increase of 81 cents.
Mr Morse will serve as interim chief executive and the board of directors will look for a new CEO, the company said.No turnaround
Ms Bartz was hired to run Yahoo in early 2009, taking over from co-founder Jerry Yang.
She made significant changes to the management team and cut jobs to save on costs. She also shifted the focus of the traditionally search-oriented firm towards more personalised content.
End Quote Carol Bartz Former CEO, Yahoo
I am very sad to tell you that I've just been fired over the phone by Yahoo's chairman of the board”
However, Larry Magid, a technology analyst at C-net, said the company has not seen enough of a turnaround under Ms Bartz's leadership.
"She hasn't done anything to change the company's fortunes, and they are still anxious to find a leader who can move them up," he said.
Critics also claim that Yahoo has failed to make significant strides in two of the most lucrative segments of the market; search and social networking.
"Facebook is way ahead, and now even Google is way ahead of Yahoo in social networking," C-net's Mr Magid added.
"In terms of the potential for long-term revenue it's just not there. They've got some great sites, great information resources, news, stocks, sports, but that's not what bringing in the money."Phone firing
The news first broke on the Wall Street Journal's All Things D website, which quoted an email from Ms Bartz to Yahoo staff. The email has since been reported by other news agencies including Bloomberg and Reuters.
"I am very sad to tell you that I've just been fired over the phone by Yahoo's chairman of the board," Ms Bartz said in the email to staff.
"It has been my pleasure to work with all of you and I wish you only the best going forward."
As news of the sacking spread across the internet, Yahoo released its own press statement in which it confirmed it was undergoing a "leadership reorganisation" and that Ms Bartz would be leaving the company.
Roy Bostock, chairman of Yahoo's board, said in the statement: "On behalf of the entire board, I want to thank Carol for her service to Yahoo during a critical time of transition in the company's history, and against a very challenging macro-economic backdrop."
He added that he saw "enormous growth opportunities" for the firm.