The former England and Arsenal star came out fighting after the match, but said he would walk if he failed to steer the side to a win over the Iron on Saturday.
Chairman Jeff Bonser said: "I felt that we had reached a point where it was in the best interests of both the club and Paul.
"We have all enjoyed working with Paul and wish him every success."
Youth team coach Mick Halsall will take charge of the first team for Saturday's game against United.
Speaking after Saturday's defeat, Merson had said: "We have had five away games on the trot - judge me at home. We have Scunthorpe on Saturday and if we lose that I will go.
"The fans were singing `Merson out'. Maybe they are right but I would say keep behind the team next week because if we lose I will go.''