Under-fire Hodgson leaves Liverpool
Hodgson, who joined Liverpool from Fulham in July last year, had been under intense pressure after several humiliating defeats, culminating in a 3-1 debacle at Blackburn Rovers in the Premier League on Wednesday.
He leaves with the club four points above the relegation zone in 12th place, having won just seven of 20 league games, and on the day before Liverpool visit arch-rivals Manchester United for an FA Cup third-round match.
Liverpool's fans, long considered among the most loyal in the game, had chanted for Hodgson's dismissal and swamped radio shows and internet forums with tales of their disenchantment and criticism of his selections and tactics.
The return until the end of the season of Dalglish, who won eight league titles as a player and manager at Anfield, will placate the fans but, having been out of club management for a decade, the appointment is seen by many as a desperate gamble.
"It's a great honour to be asked to come back (albeit) in unfortunate circumstances. I will try my best," Dalglish told reporters on Saturday night after flying back from a family holiday in the Middle East to take over at Anfield.
Hodgson, named manager of the year last season after he helped unfancied Fulham reach the Europa League final, was given the news of his dismissal on Friday night.
"I have... found the last few months some of the most challenging of my career," he said on the club website.
"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."
Former Liverpool player and assistant manager Phil Thompson said the fan pressure made Hodgson's position almost impossible.
"It has been very difficult for Roy to carry on. It is unprecedented in the way the fans have turned," he told Sky Sports News.
"Even in the dark days at the end of the (Graeme) Souness reign there were no chants for him to go. Liverpool fans felt as though we were different and we stick together -- this was incredible what we've seen."
It has certainly been a season of discontent for the supporters, who began it by campaigning against the club's previous owners George Gillett and Tom Hicks.
The pair eventually, and reluctantly, sold the club to fellow American John Henry and his NESV group.
They inherited Hodgson, just as he was stuck with most of the squad assembled by former manager Rafa Benitez, and neither party seemed particularly happy with their lot.
In a statement on the website Henry said: "Both parties thought it in the best interests of the club that he stand down," but the League Managers Association issued a statement saying Hodgson had wanted to continue in the job.
"He has not walked away, he was happy to carry on but at 8pm last night he received the news the owners no longer wanted him to continue," the statement said.
"It wasn't a surprise but it was disappointing and upsetting news," said Hodgson, who was involved in negotiations with the club over the terms of his departure until Saturday.
Looking ahead to former Scotland international Dalglish's arrival, Henry said: "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."
Former Liverpool full-back Phil Neal was among the first to welcome the return of his team-mate from the trophy-laden days of the 1970s and 80.
"We are not looking to the past with this appointment," said Neal. "He's still got the spirit within him and he's got the experience. He knows what the club was built on all those years ago.
"Kenny would be the first man to stand in and maybe create a bit of the old type of togetherness really, along with the fans."
Dalglish, a huge Anfield favourite as a player, was in charge when Liverpool claimed the last of their 18 English league championships in 1990.
He left in 1991 and had spells at Blackburn Rovers, where he won the league title again, Newcastle United and Celtic.
He returned to Liverpool as a club ambassador in 2009 but has not managed a team since leaving Celtic in 2000.
He could not have asked for a bigger match to mark his return than an FA Cup trip to Old Trafford to face Premier League leaders United and his old foe Sir Alex Ferguson.