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Jan Siewert appeared as the main candidate for Huddersfield's estate with compensation that would have been accepted.
The 36-year-old is currently coaching the second Dortmund team, a position occupied by David Wagner prior to his transfer to Huddersfield in 2015.
German publication Bild claiming that a compensatory indemnity had been agreed between the two clubs above Siewert, estimated at approximately € 300,000 (£ 264,000).
"David Wagner has left his role as head coach of Huddersfield Town by mutual consent," reads a statement from the club.
"The 47-year-old leaves the city after extensive discussions with the board of directors.The two sides agreed that it was the right decision for the club's future."
Wagner, who signed a new three-year contract last May, led the club to the top level of the Sky Bet Championship and kept him at the top last season.
Siewert led Rot-Weiss Essen (4th) and was deputy director of VfL Bochum, currently in the 2. Bundesliga.
An announcement on any appointment is not expected before Sunday's match against Manchester City.
Jurgen Klopp paid tribute to the work that David Wagner, a close friend, did in Huddersfield after leaving the club.
Klopp said of his fellow countryman's work: "He should be really proud of what he has accomplished there. One of the most special football stories.
"I remember our game there and I felt really bad after! In a few years, I think everyone will be very optimistic about this period at Huddersfield. "
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