The former England boss joined the side in 2012 and signed a four-year extension last year, in a deal reported to be worth €9 million, and which was intended to see him managing the team until the 2018 World Cup, which is being held in Russia.
But the Russian Football Union (RFU) said on Tuesday it had "reached an agreement to terminate his contract by mutual consent".
Russia was kicked out of the group stage during the 2014 World Cup in Brazil, while poor performance during qualifying games for Euro 2016 has dimmed the team's prospects of making it to the tournament.
Capello's time with Russia has been beset by woes, with the RFU admitting in November that it couldn't afford to pay him.
His salary marked him out as the highest paid coach at last year's World Cup, until the Italian revealed he was effectively working for free.
A Russian oligarch reportedly stumped up €5.2m towards the money owed in February.
Following Russia's early exit from the World Cup last summer, Capello was described as a “thief” by a Russian far-right politician and summoned to parliament to explain himself.