Fenton, the club has confirmed, will now begin a ‘period of gardening leave’.
Academy manager Wess Brown will take charge of the squad on an interim basis.
His departure comes less than 24-hours after South Shields made it two wins from two in 2022 as they saw off in-form Radcliffe 2-0 at 1st Cloud Arena on Saturday.
An early Nathan Lowe penalty gave the Mariners the lead and JJ Hooper secured the victory with a fine finish late on to move the Mariners up to third in the Pitching In Northern Premier League.
However, that wasn’t enough to save Fenton’s job and he has now departed. Shields are third in the table as they again look to push for promotion.
Reflecting on the decision, club chairman Geoff Thompson said: “This has been an extremely difficult decision to make.
"Ultimately, results and performances have not met our expectations this season given the investment made in the first-team and the club’s ambition.
“I would like to take this opportunity to express my sincere thanks to Graham for all the tireless work he has dedicated to the club since his arrival in 2016.
“His long list of achievements, coupled with the huge contribution he has made to the club’s overall growth over the last five-and-a-half years, will never be forgotten.
“He leaves the club in a far better place than when he arrived.”
Graham initially joined the club as joint manager in September 2016 alongside Lee Picton, and the pair led the team to three consecutive promotions and six trophy wins.
The 2016-17 season in particular, which culminated in a fourth trophy of the campaign in the FA Vase final at Wembley, will live long in the memory of all those associated with the club.
The club statement added: “Everyone at South Shields FC would like to thank Graham for his incredible efforts and wish him the absolute best for his career and life moving forwards. Graham and his family will always be welcome at the club.
“Further announcements will be made in the coming days and supporters are thanked for their patience.”