Pearce was on Tuesday informed by the Football Association that his six years at the Young Lions helm would come to an end when his contract expires at the end of the month.
Former international team-mate Southgate is expected to fill the void, with bookmakers pricing the former Middlesbrough boss as low as 1/5 to be named his successor. Glenn Hoddle, Michael Appleton and Phil Neville have also been linked to the post many had expected to be vacated after a miserable European Championship.
Pearce's side headed to the tournament in Israel on the back of nine successive victories without conceding, but swiftly returned home after losing all three group games. That, coupled with England's group exit two years ago, led to the FA's confirmation that the former full-back will leave when his contract expires at the end of the month.
"I'd like to thank Stuart Pearce for his hard work," chairman David Bernstein said. "Nobody can doubt his commitment to the job throughout his time as Under-21 coach.
"He has done extremely well in qualifying for finals tournaments, but after the disappointment of the past two tournaments, we believe it is time to change coach. On behalf of everyone at The FA I'd like to wish Stuart well for the future."
With the future in mind, Bernstein added: "It is important the organisation now considers the best approach for the role of Under-21 coach and how this works best within the overall England structure before making any new appointment."
While Pearce may have paid the price for a poor summer, the FA have by no means avoided scrutiny themselves. Questions over the structure have been raised and former England manager Steve McClaren called for an experienced head of youth development to be appointed after watching Spain retain the European Championship with a 4-2 win over Italy in Tuesday night's final.
"It is talking about taking coaching all the way back to that level and I know they are working on that at the FA at the present moment with Dan Ashworth, technical director at St George's Park," he told Sky Sports 1. "They are doing that at grassroots level but this elite level they need somebody at the top with experience.
"We talked about Arrigo Sacchi with Italy and Louis van Gaal doing that philosophy with Holland - experienced coaches setting the vision, starting the philosophy. It starts at the top and works down. Starting at the bottom with the coaches, working up, you'll eventually have a conveyor belt, like the Spanish, of players who can do all four components of the game."
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- Stuart Pearce
- Michael Appleton
- Glenn Hoddle
- Phil Neville