The sacking was announced at a media conference on Monday morning, but CEO Peter Jackson said it was decided at last Friday's board meeting to part ways with the coach.
He said it was in both Neeld's and the club's best interests for the parting to come immediately.
Jackson said Neeld was only told at 8am on Monday.
Asked what went wrong, Neeld replied: "I'm not so sure. I don't know … 18 months into a three-year contract, I would loved to have seen it out but it wasn't the case."
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Neeld told the media at Demons' headquarters his main emotion was disappointment..
"It's certainly been a rollercoaster ride for the last 18 months and it's been a life experience."
Assistant coach Neil Craig will take over for the rest of the season.
Jackson said Neeld's departure was part of "a total rebuild" of the club, from the board down, saying that Melbourne had become "a huge impediment" to the whole AFL.
"The on-field results have been unacceptable; it's not only the fact of one win for the year but the scale of the losses we've had to endure.
"There's been public conjecture about players and whether they want to stay beyond this year.
"It's my responsibility as CEO to do everything we can to make sure players see a future at this football club … we need to convince them as a club that this is a place they want to be for the next 10 years of their career."
Mark Neeld looks on as CEO Peter Jackson addresses the media conference. Picture: AFL Media
Jackson said the club approached the AFL Commission last week for support to restructure the club.
"Part of that was changes in personnel, part of that was changes to the board … this is a rebuild of the football club as a whole. This is not about a single person as senior coach. It's a total rebuild, it starts at the board and goes through to personnel, and included Mark Neeld as senior coach.
"When the wheels fell off at the beginning of the year so did the revenue; when you lose revenue at the top it goes straight to the bottom line. We're not structured financially like a Collingwood or Essendon where we can withhold that sort of pressure. We are a huge impediment to the industry at the moment. We are an impediment and need to fix it up as a whole."
Mark Neeld in quotes
Neeld, 41, said his sacking had not dented his desire to remain in the AFL.
"I need to take a deep breath ... and go from there."
He said that with hindsight he would have done nothing different as coach.
"We started out with some clear directions and goals, I didn't see it finishing like this. A lot of decisions had to be made and some of them were very hard and it was felt they needed to be made.
"I still have great confidence in the group of players sitting up the back there."
Neeld insisted that the playing group had a strong future, but acknowledged that a priority draft pick would be welcome.
"It will take some time, that is obvious. Another top end pick would be handy."
Neeld acknowledged that he would have some regrets.
"We've got a great group and as we improve and the results come on the field, no doubt I'll have moments. I'll sit there and think, I wonder if, but hypotheticals don't work in AFL – they don't really work in life so let's just move on."
Jackson also announced the creation of a new position as general manager of football operations, to be filled by current football manager Josh Mahoney.
AFL Coaches Association president Danny Frawley said he had no issue with the way in which the Demons handled the sacking.
"The AFLCA will look after his welfare and his future interests, and no doubt he will be a well-sought after assistant coach in the future given the skills he has now acquired."
Interim president Peter Spargo said further changes to the board would take place soon. He took over last week from Don McLardy, who stood down.
Neeld's termination comes with 18 months to run on the three-year contract he signed when he won the job in September 2011.
Jackson said his contract would be paid in full.
Neeld's winning record with the Demons stood at five wins from 33 games.
Seventeen of Neeld's 28 losses were by more than 50 points.
Melbourne under Mark Neeld
Thirty-three games: five wins, 28 losses (three wins v GWS, one v Gold Coast, one v Essendon)
Average score for: 69
Average score against: 115
Average losing margin: 60
Fourteen losses by 10 goals or more
Six losses by 90 points or more
Three losses by 100 points or more