The Premier League team also said on Thursday that assistant manager Steve Clarke had left the club by mutual consent.
"West Ham United would like to thank Gianfranco Zola for his efforts during his time at the club," read a statement on their website.
"We would like to thank both him and the LMA (League Managers Association) for their professionalism in reaching a satisfactory settlement and wish Gianfranco well for the future."
Zola, who was succeeded as manager by Avram Grant last week, referred his sacking to the LMA after he left the club following a turbulent season in which the Londoners finished one place above the relegation zone.
"I am looking forward to finding a new challenge in the game and returning to management as soon as possible," Zola said in the same statement.
The Italian arrived at Upton Park in September 2008 and enjoyed initial success, guiding the club to a ninth-place finish in his first season.
A poor start to the following campaign, however, left him on shaky ground especially after the club's takeover by David Gold and David Sullivan in January.
Clarke arrived from Chelsea in September 2008 to work alongside former Stamford Bridge team-mate Zola.
"West Ham United would like to thank Steve for all his hard work and commitment and wish him well for the future," said the club.
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