Milan have endured a disappointing start to the season despite some heavy investment over the summer, winning just two of their last nine league games to find themselves seventh in the Serie A table and already 18 points adrift of leaders Napoli.
Gattuso, a former midfield enforcer and fan favourite at San Siro, will step up from managing the club's youth side having suffered one loss in five outings.
Milan, who spent over €200 million in the summer, have now placed their former midfielder Gennaro Gattuso in charge of the first team as they try to rescue their season. "A press conference is scheduled for tomorrow to present the new coach at Milanello training centre".
AC Milan released a brief statement on Monday morning confirming Montella's sacking.
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The famously combative Gattuso, a World Cup victor in 2006, became Milan's sixth coach since Massimiliano Allegri was sacked in January, 2014. "I tried to give all I have got for this club, but I accept the decision which has been taken".
"I hope Rino takes Milan back where they belong".
"I thank the fans for their support, Fassone and Mirabelli for this opportunity and my staf for supporting me throughout".
It is now in seventh place in the Serie A standings and is coming off a draw against Torino on Sunday.
Milan, seven-times European champions, won their first six competitive games but quickly lost their spark and Sunday's match was their fourth home league game in a row without scoring.