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Ally McCoist ended a day in which he had handed in his notice as Rangers boss with a dismal defeat against Queen of the South at Palmerston.

Kevin Holt and Gavin Reilly gave Queens victory as Rangers' Scottish Championship title hopes were hit.

McCoist - on a rolling one-year contract - had earlier handed in his notice, effectively ensuring that he will step down as manager in 12 months.

Rangers are nine points behind leaders Hearts, who have a game in hand.

The Ibrox board now have several options to respond to McCoist: try to reach a settlement, pay up 12 months' salary, or put McCoist on gardening leave.

It looks like they have opted to keep him in place, with the club's financial strife meaning that there are no funds to pay McCoist off.

Having handed in his notice, McCoist spoke in his pre-match interview of hoping that this wouldn't be his last game, assuring Rangers fans that he will remain in the job and do his best for the club.

While McCoist remains an iconic figure for his playing days at Ibrox, his reputation as a manager has been dwindling this season.

Defeats to Hearts, twice, and Hibernian, as well as two draws with part-time Alloa - who also beat Rangers in the Petrofac Training Cup semi-final - has left them off the pace of leaders Hearts.

McCoist smiled and looked relaxed as he disembarked from the team bus before kick-off.

Camera crews had set up outside Rangers' training ground earlier in the afternoon to see if he would be joining the squad for the trip to Dumfries, but the manager looked unperturbed by the fuss.

Gavin Reilly showed great technique to control the cross and slam a shot past Steve Simonsen

There were individual shouts of support from Rangers fans, but when the teams appeared on the pitch for kick-off there were no obvious chants of support for the manager.

McCoist's team selection saw three players out of position and Bilel Mohsni, a regularly erratic player, at centre-back.

There were options on the bench that would have allowed the manager to drop Mohsni, move Darren McGregor to centre-back where he is more comfortable, and Richard Foster to right-back. Dean Shiels did not need to be used on the flank when he is at his best playing off the main striker.

The result was that Rangers' fragilities at the back were clear, and Queens took full advantage.

And the home side, who are four points behind Rangers in third place, were worthy of their victory.

When Holt lashed in a free-kick from 20 yards, McCoist stood on the touchline, looking grim-faced with his arms folded tightly.

There was less reaction when Reilly added the second after the break. A simple long ball between the two centre-backs allowed the striker through, and he controlled with one touch before drilling a shot in off the post with his second touch.

"Cheerio," sang the Queens fans gleefully as the visiting support headed for the exits before the end.

Queen of the South manager James Fowler:

"We were different class from start to finish. I'm delighted. The difficult part is picking the team. We've got a great bunch here. Holt surprised me with his free-kick. I don't think I've ever seen him hit one like that even in training! The group in general is fantastic.

"We expected Rangers to have a reaction and they did have that wee spell in the second half. That's why we brought on Derek Lyle.

"If we come to the end of the season and we're in the top four we'll be delighted. We know it's a long season. We should be in the top four but the other teams might strengthen in January."

Rangers manager Ally McCoist:

"I am an extremely disappointed Rangers manager. I'd like to congratulate Queens on a deserved victory. From the team's point of view we were absolutely miles short tonight and we got what we deserved.

"You can only guard your players so much. Once you cross the line you have a responsibility to perform.

"The league isn't yet halfway through. There is a massive amount of football to be played. If we continue to play like that we will have no chance of automatic promotion."

Rangers manager Ally McCoist smiles as he arrives at Palmerston

Gavin Reilly (right) celebrates putting Queen of the South 2-0 in front

Kevin Holt (right) put Queen of the South ahead at Palmerston Park

Nicky Clark, Nicky Law, Kris Boyd and Ian Black are dejected as Queens move two ahead