The Hornets are currently 13th in the Premier League table with one match remaining.
Sanchez Flores only moved to Vicarage Road last June, and has comfortably kept the team in the top flight, following promotion last year.
A club statement read: “Quique Sanchez Flores will leave Vicarage Road at the end of the season following the Sunderland game this weekend.
“We would like to thank Quique. He and the team achieved the target set them at the start of the season of staying in the Premier League for a second year.
“Quique leaves with all our best wishes for the future and the knowledge he is always welcome at Vicarage Road.”
Flores, who replaced Slavisa Jokanovic during the summer of 2015, led the club to the semi-finals of the FA Cup before losing to Crystal Palace at Wembley.
Under Flores, Watford won eight of their opening 17 Premier League matches, and a 3-0 victory over Liverpool in December lifted them to within one point of the Champions League qualification places.
But since then, they have struggled for consistency and have won only four league matches during a stuttering second half to the season.
Flores becomes the seventh manager to depart Watford since the Pozzo family completed their takeover of the club in 2012.
At Friday’s pre-match press conference, Flores explained: “Yesterday, I had a meeting with the club and after that I confirmed that the club and I don’t have the same point of view about the season.
“So, we don’t have the necessary conditions to activate the clause to renew the contract.
My contract ends on June 8 and then I will leave Watford, this is the consequence.
“I’m very grateful to the players, I love these Watford fans, I felt completely happy this year and I enjoyed the experience.
“We have a lot of reasons to be happy, so a lot of good memories of this season. The Watford fans were amazing and they gave me a lot of love.”