Connor was asked to take charge of the club following Mick McCarthy's departure in February and was unable to prevent them from suffering relegation from the Premier League.
Though he was initially retained as an assistant to new manager Stale Solbakken, Connor has now been told his lengthy association with the club has been drawn to a close.
A club statement read: "Terry Connor’s contract as assistant manager of Wolves has today been terminated with immediate effect.
"Terry has been at the club for 13 years working in a number of different roles during that time, including a stint as manager during the second half of the 2011/2012 season.
"He leaves Wolves with the very best wishes and thanks of everyone at the club.
"A fuller tribute to Terry’s long-standing service to Wolves will be paid in due course."