General manager Pete D'Alessandro said Monday that he decided to make the change because he wants the Kings to play a more free-wheeling offence, which was so successful for the franchise in the early 2000s.
D'Alessandro called Malone a "great defensive coach" and said this was the right time to make a change to bring in a coach who can take the team to the next level.
"We want to get in that arena and we want to be a compelling product," D'Alessandro said "To get to that point, what philosophy are we going to have? Who are we going to be as an organization? How are we going to make our mark within this league?"
Lead assistant Tyrone Corbin will take over as interim coach. D'Alessandro will not commit to Corbin lasting the rest of the season, saying only that he will have the full support of the organization. Corbin went 112-146 in three-plus seasons as coach of the Utah Jazz and was not offered a contract after last season.
Malone went 39-67 after being hired in June 2013 by new owner Vivek Ranadive. Malone was hired before D'Alessandro in what was considered an unusual order of events. D'Alessandro said his decision to come to Sacramento was an endorsement of Malone but now he will get the opportunity to hire his own coach.
The Kings went 28-54 in Malone's first season and missed the playoffs for an eighth straight year. This season got off to a better start with the team winning nine of its first 14 games.
But the Kings have fallen into a tailspin after star centre DeMarcus Cousins was sidelined with viral meningitis. Sacramento has lost seven of nine games without Cousins and is tied for 10th in the Western Conference with an 11-13 record.
The firing is the first major setback in Ranadive's tenure. He was welcomed as a saviour when he bought the team from the Maloof family in 2013 and prevented the team from moving to Seattle.
The Kings have already broken ground on a $477 million arena that is expected to open downtown for the 2016-17 season. But he has been unable so far to reverse the losing trend that followed a stretch of eight straight playoff berths.
"The message is we're not done," D'Alessandro said. "We're going to keep doing everything there is. We're going to keep making tough decisions. That's what we're here for."