"VfL have parted ways with Steve McClaren," Wolfsburg said in a statement, two days after a 1-0 defeat by Hanover 96 left the 2009 Bundesliga champions in 12th place, just a point above the relegation play-off spot.
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"We were not convinced any more that we could work with Steve McClaren in a solid way until the end of the season," said Wolfsburg manager Dieter Hoeness.
Wolfsburg have managed only one win in their last 11 league games.
McClaren became the first English coach at the helm of a Bundesliga club after joining Wolfsburg in the summer, fresh from steering Twente Enschede to their maiden Dutch title.
He had taken over the Dutch side in 2008, seven months after his spell in charge of England ended in humiliation with the country failing to qualify for Euro 2008.
But at Wolfsburg he failed to make an impact despite hanging on for half a season to the club's top striker Edin Dzeko, who moved on to Manchester City in the January transfer window for a reported 30 million pounds.
McClaren also failed to get the best out of talented Brazilian midfielder Diego, who blatantly ignored the coach's instructions not to take a penalty in Saturday's defeat by Hanover.
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"Unfortunately we could not see any alternative to this," said Wolfsburg board chairman Javier Garcia Sanz.
"Obviously we want continuity especially in the coaching position... but believed that the team would not be able to turn the wheel around under Steve McClaren," Sanz said.
The 50-year-old Littbarski, a World Cup winner as a player with Germany in 1990, has had a less stellar coaching career with stints in Australia, Japan and Liechtenstein as well as Germany's second division.
This is the first time he will be in charge of a Bundelisga club.
"We have talked a long time with him (Littbarski) and he has convinced us that he will introduce those measures that are necessary in our situtation," said Hoeness.
