A popular figure among supporters and players alike thanks to his bubbly character and willingness to wear his heart on his sleeve, the 52-year-old returned to Liverpool in 2008 to become Rafa Benitez's number two.
Three's a crowd: Lee (left) saw his role under Dalglish altered by the arrival of Clarke (centre)
Lee stayed on after Benitez left 12 months ago to assist Roy Hodgson and remained after the former Fulham manager was replaced by Kenny Dalglish earlier this year.
But even though he remained an integral part of the backroom set up, Lee's role altered slightly after Steve Clarke arrived to become Dalglish's right-hand man in January.
The parting of the ways will deeply sadden Lee, who won four League titles and two European Cups during his 10 years as a Liverpool player.
In total, the pint-sized midfielder made 295 appearances, scoring 14 goals before leaving for spells at Queens Park Rangers and Osasuna. He was also capped 14 times by England
Well respected within the game, Lee first joined Liverpool's coaching staff in 1993 when he received an offer from Greame Souness .
He worked his way up from coaching the reserve team to a place alongside Gerard Houllier and Phil Thompson during Liverpool's 2000-01 campaign which culminated in them winning a Cup treble.
Change for the better: Rafa Benitez produced a masterstroke by luring Lee back to Anfield
Lee became a part time member of Sven Goran Eriksson's set up in 2001 and joined permanently in 2004 after Houllier left the club.
A spell as Bolton's assistant manager followed in 2005 before he succeeded Sam Allardyce at the Reebok in 2007 and there is now inevitable speculation he will join Allardyce at West Ham.
It was a regarded as a masterstroke by Benitez to bring Lee back in May 2008 and he certainly played his part that season, as Liverpool finished runners-up to Manchester United in the Barclays Premier League.
When Benitez was confined to hospital after undergoing surgery to remove kidney stones, Lee became caretaker manager but never flinched, insisting at the time it was 'business as usual'. Shortly after that, he received a contract extension in March 2009.
There has been no comment on the matter from either Lee or Liverpool but the timing of his departure - five days before the first team returns for pre-season training - is a surprise.
Next move: Could Lee be reunited with Allardyce at West Ham?
After all, Dalglish was quick to heap praise on the way Lee and Clarke had helped him after he was made permanent manager in May.
Dalglish said at the time: 'The best way to get results is to get great people working with you and that's what we did.
'You identify your faults and bring in someone that's better than you at what you can't do and we've got a good chance. Stevie and Sammy are much better at what they do than what I could do for them.
'Steve has been fantastic, Sammy is still here and done a great job alongside him and the three of us work together. It works well for us.'
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