The 49-year-old was retained when Stale Solbakken was named as McCarthy's permanent replacement in the summer but this decision ends his 13-year stay at the club. A statement on Wolves' official website read: "Terry Connor's contract as assistant manager of Wolves has today been terminated with immediate effect.
"Terry has been at the club for 13 years working in a number of different roles during that time, including a stint as manager during the second half of the 2011/2012 season.
"He leaves Wolves with the very best wishes and thanks of everyone at the club.
"A fuller tribute to Terry's long-standing service to Wolves will be paid in due course."
With McCarthy actively seeking employment, it remains to be seen whether Connor will join the former Republic of Ireland boss in his next role.