"Fiat Chrysler Automobiles N.V. communicates with profound sorrow that during the course of this week unexpected complications arose while Mr. Marchionne was recovering", the the official statement read.
Marchionne was reported to have had surgery for a shoulder problem about three weeks ago in Switzerland.
Marchionne, 66, had already announced he would step down in early 2019, so the board's decision, to be confirmed at an upcoming shareholders' meeting, will "accelerate" the CEO transition process.
According to Reuters, Marchionne had meant to remain as Chairman and CEO of Ferrari until 2021. Sergio Marchionne was replaced after leading the charge to completely turn around two flagging automobile brands.
Sergio Marchionne was replaced as chief executive of Fiat Chrysler (FCA) on Saturday by the head of the firm's Jeep division, Mike Manley, after the health of the carmaker's long-time boss deteriorated sharply following surgery.
His departure also vacates the positions of Ferrari CEO and chief executive, with Agnelli family progeny John Elkann picking up the reigns as CEO and Louis Camilleri taking the job of chief executive.
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The passenger-car brands of Fiat and Chrysler have been less profitable.
The announcement after an emergency board meeting Saturday marked the end of the Marchionne era, which included the turnaround of failing Fiat, the takeover of bankrupt USA automaker Chrysler and the spinoffs of the heavy machinery and truck maker CNH and supercar maker Ferrari. The British exec joined Chrysler in 2000 when it was under the ownership of Daimler and was central to the Jeep brand's transformation from ailing dead weight back into the black as a global heavyweight. Since taking over, he has overseen the growth of Jeep in the USA and is responsible for the brand's big push into the European market.
Manley also oversaw the expansion of Jeep into China as COO of FCA's Asia-Pacifica region, which has become a third profit center for the automaker behind North America and Europe. Fiat started with a 20 per cent stake rising to 58 per cent in 2012 and in 2014 it bought the remaining shares from the UAW creating a wholly-owned subsidiary, and later that year merged both companies into the FCA.
CNH Industrial, which Marchionne also chairs, named Suzanna Heywood, as his replacement.
In October 2015, Manley was also was given responsibility for the Ram brand.
"It was a situation that was unthinkable until a few hours ago, and leaves us all with a sense of injustice", he added.