It is the first time Barca have sacked a head coach in the middle of a season since Louis van Gaal in 2003, and Valverde leaves with the team top of the table, albeit on goal difference from Real Madrid.
Valverde failed to completely win over supporters since being appointed in the summer of 2017, with his reputation damaged by crushing Champions League defeats to Roma and Liverpool.
Barca lost to Roma on away goals in the quarter-finals in 2017/18 after winning the first leg 4-1 and were then beaten 4-3 on aggregate by Liverpool in the semi-finals a year later after winning the first leg 3-0.
Valverde took training on Monday and, according to reports in Spain, then spoke with club president Josep Maria Bartomeu to discuss his future and was later told he would not be continuing.
Former Real Betis head coach Setien has replaced Valverde. He led Betis to a sixth-place finish in 2017/18 but was sacked at the end of last season.
Quique Setién is the favourite to take charge
Image credit: Getty Images
The 61-year-old has signed a deal until 2022 and will be presented at the Nou Camp on Tuesday afternoon.
A statement from Barca says Setien has "throughout his career been a proponent of possession based, attacking football that has been attractive to the fans".
Barca legend Xavi had reportedly been offered the job, but said he would only take over in the summer.