Liverpool have announced that Roy Hodgson has left the club by "mutual consent" – and that Kenny Dalglish has been installed as caretaker manager until the end of the season.

Hodgson, 63, has been under severe presssure after losing nine out of 20 Premier League matches and bemoaning the lack of "the famous Anfield support". And, following the 3-1 defeat at Blackburn on Wednesday, the Liverpool principal owner, John Henry, finally decided to remove Hodgson this morning "in the best interests of the club".

"We are grateful for Roy's efforts over the past six months, but both parties thought it in the best interests of the club that he stand down from his position as team manager," he said. "We wish him all the best for the future."

In a statement Hodgson, who signed a three-year contract when he took charge at Anfield last July, admitted that he had found the "last few months some of the most challenging of my career".

He added: "Being asked to manage Liverpool Football Club was a great privilege. Any manager would be honoured to manage a club with such an incredible history, such embedded tradition and such an amazing set of fans. Liverpool is one of the great clubs in world football.

"I am very sad not to have been able to put my stamp on the squad, to be given the time to bring new players into the club in this transfer window and to have been able to be part of the rebuilding process at Liverpool. The club has some great, world-class players, with whom it has been a pleasure to work and I wish the entire squad well for the rest of the season.

"I thank those with whom I have built up a close working relationship at the club for their loyalty and support during very testing times, and finally of course to the Liverpool fans, your passion and dedication to the club will see Liverpool at the top of the game once more."

Dalglish, who managed Liverpool for nearly six years between May 1985 and February 1991 - winning the double in his first full season before leading the club to two further league titles and two FA Cup triumphs – will take immediate control at Anfield starting with tomorrow's FA Cup third-round tie at Manchester United.

Henry added: "We are delighted that Dalglish has agreed to step in and manage the team for Sunday's FA Cup tie at Old Trafford and for the remainder of the season. Kenny was not just a legendary footballer, he was the third of our three most successful managers – three giants. We are extraordinarily fortunate and grateful that he has decided to step in during the middle of this season."

Meanwhile the chairman, Tom Werner, reflecting on a dismal season which has included home defeats to Northampton Town in the Carling Cup and to Blackpool and Wolves in the Premier League, added: "No one who cares for this great club has been happy with the way this season has unfolded and we have examined options and considered at length what is best for us going forward. Kenny will bring considerable experience to the position and provide management and leadership for the rest of the season."