Gareth Southgate and Michael Appleton are leading contenders to succeed Stuart Pearce as manager of the England Under-21s after the Football Association confirmed it will not be renewing his contract, which expires at the end of the month.

Pearce, who led the junior side to four tournaments over his six-year stint in charge, had spent the past two days in talks with members of the Club England board – in consultation with the incoming FA chairman, Greg Dyke – following the team's disastrous showing at this month's European Championship in Israel. The Under-21s lost all three of their group games, scoring only once en route, and went out of the competition at the first hurdle, with the FA having now decided it is time for a change at the top.

The former Manchester City manager will leave his post on 30 June, with the FA now to start the process of finding a successor. Both Southgate and Appleton are expected to declare an interest and feature highly in its thoughts.

Southgate, the former Middlesbrough manager who is currently working as a TV pundit, is the former head of elite development at the FA and played a major role in the conception and implementation of the Elite Player Performance Plan (EPPP) for youth football before leaving the post almost a year ago. He is now apparently ready to return to management and, given his knowledge and background, would potentially be able to build better relations with clubs to secure the release of their young talent.

The senior manager, Roy Hodgson, would be receptive to working with Southgate but also enjoys a close relationship with Appleton, whose fledgling managerial career has already taken in short spells with Portsmouth, Blackpool and Blackburn Rovers. Indeed, Hodgson had been impressed with Appleton as a young coach at West Bromwich Albion Albion, where the 37-year-old also worked with Dan Ashworth, who has recently taken up the role of director of elite development at the FA.

Other potential candidates include Phil Neville, a member of Pearce's coaching staff in Israel, and Peter Taylor, who is currently enjoying a short-term stint as manager of the Under-20s. Glenn Hoddle, mooted as a possibility for the role, has indicated he would be interested only if the current national set-up was overhauled.

The Club England board will now deliberate ahead of making an appointment and, while there may be a friendly in August, the side are not due to play a competitive fixture until their next qualifying campaign kicks off in September.

"It is important the organisation now considers the best approach for the role of Under-21 coach and how this works best within the overall England structure before making any new appointment," said the FA chairman, David Bernstein, who will be replaced by Dyke next month. "I'd like to thank Stuart Pearce for his hard work. Nobody can doubt his commitment to the job throughout his time as Under-21 coach.

"He has done extremely well in qualifying for finals tournaments, but after the disappointment of the past two tournaments, we believe it is time to change coach. On behalf of everyone at the FA, I'd like to wish Stuart well for the future."

Despite an excellent record in qualification, and having reached the final of the European Championships in 2009 where they lost to Germany, Pearce won only three of his 15 games at major tournaments. His side, albeit depleted with key personnel absent in Israel, lost to Italy, Norway and the hosts to return home pointless.