Mel was appointed in January to replace Steve Clarke, and tasked with keeping the club in the Premier League following nearly four years with Real Betis.
The Spaniard was able to achieve that objective, narrowly guiding the Midlands club to safety as West Brom finished the season just three points above the relegation zone in 17th.
The 51-year-old was able to engineer just three wins from 17 Premier League matches in charge of West Brom, with only the dismal form of Cardiff City, Fulham and Norwich City keeping Mel's side in the top flight.
Sporting and technical director Richard Garlick said: "We would like to thank Pepe for his efforts over the past four months in helping to keep the club in the Premier League and wish him well for the future.
"Both Pepe and the club set out with the best intentions of making the appointment work. However, having reflected on events both on and off the field during our talks today, it became apparent that it was in the best interests of both parties for there to be an amicable parting.
"We are grateful for the manner in which the existing coaching staff and players have rallied behind Pepe to get the club over the line in what has proved an extremely competitive division."
Assistant David Gomez has also left his post, however, Keith Downing, who took interim charge following the departure of Steve Clarke in December, and goalkeeper coach Dean Kiely will remain in their respective roles.
Garlick added: "Although we have managed to achieve a fifth successive season of Premier League football, it has been a very disappointing campaign and lessons have been learned.
"The search for a new head coach has now begun. We aim to find the most suitable candidate who, with the support of the structure we have had in place for six years and are presently strengthening, will enable the club to be more competitive next season."
