A statement on the club's website confirmed the departure of MacFarlane this morning.
After a promising start to their National League North campaign, Harriers sit two points adrift of the play-off places, with just two wins since the beginning of November.
"Following mutually amicable discussions, it has been agreed that Neil MacFarlane and the Club will part company with immediate effect," a statement on the club's website reads.
"The club would like to wish Neil every good fortune for the future.
"Senior players Jimmy O'Connor and Russ Penn will join Colin Gordon in overseeing first team affairs for the remainder of the season."
Kidderminster's next game is a crucial trip to Spennymoor Town tomorrow night.