Confirmation of his departure came less than 30 minutes after the club’s win at Preston and Paunovic revealed in his post-match interview that he had been relieved of his duties before Saturday’s game.
“We came to the point where this decision was best for the club,” Paunovic told BBC Radio Berkshire.
“I’m pretty self-aware of the things that are happening and the negativity that was surrounding me.
“I never thought that it was fair, but I also don’t think the team needs it at this point.
“I’m completely unselfish in this decision, I want the team to excel and I want the best for the club. I really have a huge respect for the opportunity and the time I’ve spent at this club.
“I just wanted to do the best for the club and we reached an agreement where this was the right time to make this decision for the future of it.”
On and off-field issues
Reading ended a seven-game losing run in the league with a point at Peterborough on Wednesday, keeping a first clean sheet since beating bottom-of-the-table Barnsley 1-0 in mid-October.
Former Real Mallorca and Atletico Madrid midfielder Paunovic succeeded Mark Bowen when he was handed the job on the eve of the 2020-21 season.
He oversaw an impressive start to his tenure as the Royals were surprise early Championship leaders that season with an eight-match unbeaten run at the start of the campaign, winning seven and drawing the other.
But they eventually missed out on the play-offs, finishing seven points adrift in seventh.
This season Paunovic has had to contend with a series of on and off-field issues including a lengthy injury list, a transfer embargo, a six-point deduction enforced in November for breaking EFL financial rules and an embarrassing FA Cup third round exit against non-league Kidderminster Harriers.
Before their home defeat by Coventry on 12 February, a number of supporters staged a protest against the club’s owners in an attempt to overshadow celebrations of the club’s 150th anniversary.
Paunovic’s departure is Reading’s fifth managerial change in less than three years since Jaap Stam was sacked in March 2018.
Former Reading midfielder and BBC Radio Berkshire summariser Jem Karacan
I find it hard to get my head around the timing of the decision.
The club have stuck by Veljko Paunovic all season while the supporters have been calling for his head and they’ve not really backed him.
They hung him out to dry to an extent, letting him answer questions week after week he shouldn’t have been having to deal with and didn’t want to be answering.
I’m speechless and I’m not sure the decision to bring in Paul Ince is the right call.
The chain of events is interesting with Tom Ince having joined the club on loan from Stoke City on transfer deadline day. A week later, Paul is placed in interim charge.
Michael Gilkes on the other hand knows the club inside out and I would have seen more sense in him taking the job until the end of the season.
He’s there inside the building already and would know better than most what’s been going on with this current first-team squad.
At the end of day, people who love the club just want them to stay in the Championship and it will be interesting to see who makes the decisions between Paul Ince and Michael Gilkes.