Kim only took over the job last May and his arrival was greeted with plenty of fanfare, with the Sailors lauded for pulling off a coup in landing the 2022 AFC Champions League-winning coach with Ulsan Hyundai.
The 52-year-old still had over a year to run on his contract.
"Lion City Sailors and head coach Kim Do-hoon have reached a mutual agreement to part ways," read an official statement released by the club.
"We thank him for his service, and we wish him the best in his future endeavours."
The decision for both parties to part ways comes as a huge shock given Kim has achieved plenty of success in his brief time in charge of the Sailors, having led them to their maiden SPL title in 2021 before following it up with two victories in their debut ACL campaign earlier this year.
The Sailors remain on course to successfully defend their crown this term, although a recent slump in form -- with just two wins in their past five outings -- now sees them hold only a one-point lead over Albirex Niigata (S) at the summit.
The parting of ways does come in the immediate aftermath of Kim being handed a three-match ban after being found guilty of violent conduct in an ill-tempered 2-1 win over Tampines Rovers on July 24, where he got into an altercation with Fahrudin Mustafic -- a member of the opposition coaching staff.
The Sailors have announced that academy technical director Luka Lalic will take charge of the first team on an interim basis until a permanent successor is appointed.