The 58-year-old will be replaced with immediate effect by former club vice-president Fernando Martin.
"We have a squad of great players," said Perez. "But some of them think they have a guaranteed place and that they are the best. They are confused."
Real have won the Primera Liga title twice and the Champions League once in 2002 during Perez's reign - but have not secured any silverware since 2003 and face the prospect of another season without a trophy.
Perez replaced Lorenzo Sanz in 2000 and heralded the "galactico" era at the Bernabeu by buying stars such as Portugal's Luis Figo, Frenchman Zinedine Zidane, Brazilian Ronaldo and England captain David Beckham.
But he now believes flaws in the policy of buying such high-profile players have cost the club on the pitch, despite Madrid overtaking Manchester United as the biggest generator of revenue.
