The contract of the England U21 manager, has been terminated with immediate effect after the Citizens finished 14th this season in the Premiership table with a record least goals scored.
Paul Jewell could replace him at the City of Manchester Stadium after resigning his post at Wigan Athletic earlier in the day.
Pearce who was nicknamed "Sparky" during his time at Highfield Road by City players for his electrical skills, could be a possible candidate if Iain Dowie is lured elsewhere.