Rangers boss Stuart McCall says he feels sorry for Gael Bigirimana, but admits he should never have been signed.
Chris Gunter will stay at Reading, after the club took up the option to extend his deal by another year.
The 4-1 defeat to Werder Bremen left the club, who were promoted to the top flight in 2008, inside the bottom three, four points adrift of safety.
With just 12 points from the first 15 games of the season, it is Hoffenheim's worst ever start to a Bundesliga campaign and Babbel has today paid the price and been dismissed just a week short of 10 months at the helm.
General manager Andreas Muller felt the club was left with little room for manoeuvre given their predicament.
He said: "After careful consideration, and in agreement with the club management, as well as the board members, I have decided to make a cut.
"Our increasingly threatening sporting situation and the continuing negative trend have left me with no choice."
Reserve-team coach Kramer has been appointed as the club's new caretaker-coach and begins work immediately preparing for Friday night's trip to Hamburg.
"Frank Kramer is going to take responsibility for the coming two games for the time being, but possibly even for longer than that," explained Muller.
"He is an excellent football coach and he has our full faith.
"In this situation, we need peace and quiet to be able to consider our next steps."
Kramer has been in charge of Hoffenheim's reserves for 18 months and has led them to third place in the fourth division ahead of the winter break.
He will be assisted by Julian Nagelsmann, who had been in charge of the club's under-16s.
"Of course I had not wanted to have to stand in, but I am confident enough to take on this difficult challenge," said Kramer.
"In the few days we have until the game in Hamburg, the focus will be on giving the players back the faith in their strengths, and I will do everything I can to achieve that."
Kramer will also need to pay particular care to the club's leaky defence.
Hoffenheim have conceded 36 goals already this term, including 13 in their last four matches, while their last win dates back a month, when they defeated Schalke 3-2.
Furthermore, they were eliminated from the DFB-Pokal in the first round, going down 4-0 to fourth division club Berliner AK 07.