Hoffenheim are struggling in 16th place on the table following nine defeats in their last 10 matches, reports Xinhua.
The 40-year-old former German international, who has previously coached Hertha Berlin and VfB Stuttgart, will be replaced temporarily by the German U-23 team coach Frank Kramer.
"The deteriorating situation on the sporting front and the negative atmosphere left me no choice," said club manager Andreas Mueller Monday.
"We must push the reset button and start afresh," added Mueller, who conceded it had been a difficult decision to take.
Mueller said that Babbel, whose overall record was seven wins, eight draws and 14 defeats, had worked hard, but that things simply hadn't worked out.
Babbel had been in charge since February and his contract ran till June 30, 2014.
He is the second Bundesliga coach to lose his job this season, veteran Felix Magath having been sacked by VfL Wolfsburg in October.
