The 51-year-old joined the east London club in November 2010 as a defensive coach under then-manager Avram Grant and was promoted by the Israeli's successor, Sam Allardyce, in the summer of 2011.
He helped Allardyce achieve promotion to the Premier League at the first time of asking but is understood to have left on Tuesday evening.
Downes had a stint managing Brentford and also played for Wimbledon, Sheffield United and Newport County during his career.
He has already been linked with a return to Reading, where he worked under Steve Coppell during the side's record-breaking promotion season of 2005/6, but present manager Brian McDermott, speaking after his side's defeat to Sunderland on Tuesday, dismissed the rumours.
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