A gamble on Carlo Ancelotti to become the next Manchester United manager took place on Wednesday.
Ignacio Camacho has ended speculation over his future by signing a new contract at Malaga.
The 46-year-old former Leyton Orient manager has been on sick leave with a stress-related illness since January.
In his absence Alan Knill guided the Gulls to npower League Two safety after taking charge in February until Saturday's 3-3 draw with Bristol Rovers, his last game in temporary charge.
"The decision is based purely on footballing grounds, after falling from play-off contenders last season to just escaping relegation this time around, and early exits in all three cup competitions," a club statement said.
"Everyone at Plainmoor would like to thank Martin for his work over the last two years and we wish him every success in the future."