Bayern conceded the Bundesliga title just over a week ago to SV Werder Bremen, and were eliminated from the UEFA Champions League in the first knockout round by Real Madrid CF. Hitzfeld, 55, had said last month that he would step down at the end of next season, but his departure has been brought forward after a meeting on Monday evening.
The decision was taken following the 3-1 home defeat by Bremen on 8 May, which ended Bayern's title defence. Hoeness was quoted by the Abendzeitung newspaper as saying: "I told Ottmar and he accepted it." He added: "That [Bremen] game changed the world. It was clear to me then that we could not take another year like this. It was not working."
Hitzfeld revealed: "I had a quiet, nice evening yesterday with Uli Hoeness and after all I heard from him I understood that the club needed somebody else to take over. I accepted the decision by the club."
Champions League return
Hitzfeld's final game in charge will be at home to SC Freiburg on Saturday. Bayern are second in the Bundesliga with one match to go and guaranteed a Champions League berth for next season, although they must maintain their current position to go straight into the group stage.
Hitzfeld was appointed in 1998 and brought four Bundesliga titles to the Olympiastadion along with the Champions League in 2000/01 - a feat he had also achieved with BV Borussia Dortmund, making him the only coach to win the tournament with two different clubs.
He previously coached Swiss sides FC Zug, FC Aarau and Grasshopper-Club, before moving to Dortmund in 1991 and claiming two German championships. Indeed, Hitzfeld's tally of 15 major club honours is the highest of any German coach.
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