Prandelli is thought to have resigned on Friday after the club informed him he would not be able to make the signing of up to five footballers he had asked for in the winter transfer window in order to strengthen the La Liga squad, reports Xinhua.
He leaves with Valencia fourth from bottom of the BBVA Primera Liga table with just 12 points from 15 matches, level with 18th placed Sporting Gijon, who currently occupy the last place in the relegation zone.
The club has confirmed that for the short term the former Italy coach will be replaced by club delegate 'Voro' Gonzalez, who has already taken over the reins this season after Paco Ayestaran was sacked just four games into the current season.
There were high hopes that Prandelli could lift Valencia out of the doldrums. But the ninth man to occupy the Valencia coach's position after Unai Emery left the club in 2012 has fared no better than his predecessors and managed just two wins and two draws in his seven league games at the helm (a worse average than the much-criticised Gary Neville).
Meanwhile the atmosphere at the club has become increasingly charged in recent matches with fans demanding the departure of owner Peter Lim and club president Chan Lay Hoon.