Fiat said the 66-year-old had suffered complications following surgery.
Though he has ruffled feathers at Maranello, Marchionne has been instrumental in seeing the Italian team's revival as it once again becomes a serious title contender, at the same time he has bought the legendary Alfa Romeo name back to F1.
In a statement, Mr Elkann said he was "profoundly saddened" by the situation.
While the company offered no details as to the nature or extent of Marchionne's issues, it says in a statement that the former CEO's health problems have "worsened significantly in recent hours" and he is "unable to return to work". His credentials include running the profitable Jeep and Ram brands and he also built the company's presence in Asia. "My first thoughts go to Sergio and his family".
But Marchionne developed complications following surgery in Italy and his health took a turn for the worse, making the corporate news necessary.
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The Board of Directors of FCA, meeting today, firstly expressed its closeness to Sergio Marchionne and his family and underlined the extraordinary contribution, both human and professional, that he has made to the Company in these years.
"The Board resolved to accelerate the CEO transition process that has been proceeding over the past months". He asked everyone to respect Marchionne's "privacy and that of all those who are dear to him".
The boards of Ferrari and CNH Industrial, which makes heavy machinery and trucks, were called urgently to meet on Saturday in Turin, Fiat's headquarters.
Taking effect immediately, the board has granted Manley all the powers of CEO. He will also assume responsibility for the NAFTA region.
Marchionne had planned to leave the company early next year and had recently announced a strategy to boost company profits and global sales volume through 2022.