The club said the move followed a "very open discussion" between Kehl and senior figures, with both sides agreeing it was the right time to part ways.
Sport managing director Lars Ricken explained the thinking behind the decision. He said: "We came to the shared conclusion that the summer is the right time for changes. To allow both sides to prepare, we mutually agreed to an immediate termination."
Ricken also paid tribute to Kehl's long service, adding: "Sebastian and I go back a long way. He has made an enormous contribution to this club, and we are very grateful for his commitment."
Kehl, who spent more than two decades at Dortmund in both playing and executive roles, spoke with pride about his time at the club. "Borussia Dortmund has been part of my life for half of my life," he said. "We have jointly come to the conclusion that it is time to move forward â- both for the club and for me."
He added: "I am proud to have been part of this club for around 24 years. I experienced incredible moments with the team, staff and fans. It will always make me proud to be part of the club's history."
Kehl returned to Dortmund in 2018 as head of the professional players department, helping the club win the DFB-Pokal in 2021. He became sporting director in 2022 and oversaw a period that included a run to the UEFA Champions League Final 2024.
Behind the scenes, however, concerns had been growing. Reports in Germany suggested Dortmund's leadership had doubts about the club's transfer strategy, with criticism that recruitment had declined in recent years. There was also a belief that the club had lost its edge in identifying and developing top young talent.
Further reports claimed Kehl's decision-making was seen as too slow, with hesitation affecting key moments in the transfer market.
Despite the sudden nature of the announcement, it is understood the decision had already been made before the weekend's victory, with the timing allowing Dortmund to begin restructuring during the international break.
The club has yet to confirm who will replace Kehl, as Dortmund prepare for a crucial period both on and off the pitch.