The club confirmed the move via Twitter on Friday, with a formal announcement due later in the day.
"The club can confirm it has parted ways with senior coach Scott Watters," the Saints' tweet said.
"President Peter Summers will make a statement this afternoon."
Watters inherited an ageing list from Ross Lyon, who made a shock move to Fremantle after the 2011 season.
Watters guided the Saints to ninth in his first season last year.
But this year, they came 16th with just five wins.
They have since lost star player Nick Dal Santo, who switched to North Melbourne as a free agent.
That came a year after they lost another star Brendon Goddard to Essendon as a free agent.
Watters had been contracted for next year, but had been keen to have his term extended beyond that period.
His sacking continues a period of upheaval at the Saints.
Chief executive Michael Nettlefold recently announced he was quitting, although he will stay until the club can find a replacement.
Summers was recently voted in to replace former president Greg Westaway.
The Saints also lost football manager Greg Hutchison, while it was announced on Thursday that assistant coach Dean Laidley had switched to Carlton.
St Kilda have also traded away their talented young No.1 ruckman Ben McEvoy to Hawthorn to bolster their draft position as they rebuild their playing list.
There is speculation that former Port Adelaide premiership coach Mark Williams, head of development at Richmond, is a strong contender to replace Watters.
Watters said earlier on Friday that he enjoyed the absolute confidence of the AFL club's board.
In a radio interview on Friday morning, Watters said he was focusing on coaching during a "challenging" time for the club.
"When a president sits with you and says we see you as a long-term coach, that's enough for me," he said.
"We're really clear on where were at, we know it's a challenging period but we're also really excited about the quality of player that we have brought in.
"The decisions we've made at times have been really tough but they've been decisions made that we think will better our football club.
"It's important for our members to know how much positivity is going on."