Alvarez had been under pressure since failing to qualify the side for the group stages of the Champions League last month and Sunday's 2-0 La Liga defeat at promoted Hercules proved the final straw.
Manzano, who led cash-strapped Real Mallorca to fifth in the championship last season before quitting, will take charge of his first training session on Monday evening.
He faces a tough first week with a trip to play Borussia Dortmund in the Europa League on Thursday, and a La Liga debut at home to former club and direct rivals for a top four finish Atletico Madrid next Sunday.
The 54-year-old brings with him over a decade of top-flight experience, most of that from two spells with Mallorca, with whom he won the King's Cup in 2003.
Alvarez leaves after only six months at the helm.
He was promoted to replace Manolo Jimenez on a temporary basis back in March, and steered the side to a 2-0 victory over Atletico Madrid in the King's Cup final and fourth place in the league last May.
His position was made permanent, but their surprise exit from the Champions League play-offs to Braga and their Spanish Super Cup defeat against Barcelona in August damaged his credibility.
A 1-1 draw against Racing Santander at the Sanchez Pizjuan on Thursday ended with disgruntled fans chanting for him to go, and although Sunday's defeat was his first of the league campaign the club decided to act.
He leaves them seventh in the standings after five matches, five points adrift of leaders Valencia.
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