Under the 51-year-old Spaniard, Watford achieved an unexpected FA Cup semi-final berth and have secured safety in the Premier League where they currently sit 13th with a match to go.
Flores, who joined the club during the close season, recently revealed there was a break clause in his contract. He is the fifth manager in the last two years to part the club under Italian owner Gino Pozzo.
Just three wins from their last 14 league games had raised questions whether Flores is the right man to lead Watford to a sustained period of success in the top-flight despite guiding the promoted club to safety.
"We would like to thank Quique. He and the team achieved the target set them at the start of the season of staying in the Premier League for a second year," the club said on their website (www.watfordfc.com).
Watford face fourth-from-bottom Sunderland at Vicarage Road on Sunday in Flores' last match as their manager.
