The Portuguese gaffer took charge of the Swans in December when they looked dead-and-buried following a dismal first half of the season.
And he breathed life into the Welsh side as they secured wins over Watford, Wolves, Liverpool and Arsenal in the first month of his tenure.
Swansea seemed on course for safety before a terrible winless run towards the end of the season left them needing a miracle against Stoke on the final day.
Carvalhal’s side failed to muster anything like the performance required though and dropped out of the Premier League following a defeat to the already-relegated Potters.
Carlos Carvalhal failed to guide Swansea to Premier League safety
Swansea have now confirmed Carvalhal will be leaving the Liberty Stadium at the end of his short-term contract following more than a week of speculation his job was on the line.
Swansea chief Huw Jenkins revealed the decision not to extend Carvalhal’s contract had been taken as the club look to “move in a new direction”.
“We’d like to put on record our thanks to Carlos for his enthusiasm, hard work and commitment since arriving at the club in December,” said Jenkins.
“Naturally, we are all disappointed with the club’s relegation from the Premier League, and following discussions with Carlos, we felt it was in the best interests of both parties that we move in a new direction.
“We will now be looking to appoint a new manager in readiness for the 2018-19 season.
“While there are already rumours linking us with several managers, it is vital that we identify the right person to take this team forward.”
Swansea have confirmed first-team coaches Joao Mario and Bruno Lage join Carvalhal in departing the Liberty Stadium, along with match analysts Jhony Conceicao and Paulo Sampaio.
BetVictor have installed Chris Coleman as favourite to succeed Carvalhal, with Graham Potter, Chris Wilder, Cameron Toshack and Leon Britton rounding off the top five.