Houllier, 63, was confined to a hospital bed for eight days in April a decade after undergoing open heart surgery.
"The club can confirm that by mutual consent, Gerard Houllier has stepped down as manager of Aston Villa with immediate effect," said a statement on the club website.
"He was unable to take charge of team affairs for the final five games of the season and doctors have advised that he will require further time to recuperate.
"The club and Gerard have agreed to this resolution and the search has begun for a new manager to prepare the team for the coming season."
Houllier, who took over Aston Villa last September after the departure of Martin O'Neill, said he was disappointed that he would not have the opportunity to manage the club next season.
"My health has improved considerably since I was taken ill on April 20," said Houllier who guided Villa to ninth in the Premier League table.
"I now intend to take the next few months to concentrate on recuperating fully before I may return to football."
Houllier guided Liverpool to the League Cup, the FA Cup and the UEFA Cup in 2001, the year he required heart surgery after falling ill at a match. He left Anfield in 2004.
He won French league titles with PSG in 1986 and Lyon in 2006 and 2007.
