The departure of the former England and Wasps scrum-half brings to an end a lengthy spell alongside Director of Rugby Rob Andrew, who stays on at the north-east club to spearhead their survival fight.
Andrew is currently the longest-serving Premiership boss, but it was his partnership with Bates that led the club to the 1997-8 domestic title. After a torrid season in and around the bottom spot in the table this time round however, Bates' position came under increasing scrutiny.
That was heavily due to the increased role played by World Cup-winning Wallaby prop Andrew Blades – the former Brumbies and Australia Under-21 staff member who was brought into the Falcons to work with their forwards, but who has been effectively promoted into a wider role.
Newcastle chief executive John Parkinson said: "On behalf of the club, I would like to thank Steve for his work with the club and wish him and his family all the best for the future."
Bates himself told The Journal newspaper: "Things happen in professional sport and you sometimes have to accept that, but to be perfectly honest I don't think any of what happened is any fault of mine, and I have no doubts about the legitimacy of my coaching ideals or credentials.
"I will sit back and take some time before making a decision on my future and see what's available, whether that's in the Premiership or elsewhere."
Bates was also instrumental in luring star England fly-half Jonny Wilkinson to the club, having taught the youngster while at school, Wilkinson still pulling the strings in the Newcastle side to this day, despite having not signed an extension to his contract yet which runs out at the end of the current campaign.
The Falcons are now third-bottom of the Zurich Premiership table after their narrow win over champions Leicester Tigers on Sunday, and have seen the arrival of veteran Springbok lock Mark Andrews as a catalyst to their survival as a top-flight entity.
Other southern hemisphere expertise has already been sought on the playing front with the signings of South African back rower Warren Britz, as well as Kiwis Mark Mayerhofler, Craig Newby and James Christian.
Speculation also persists that former Falcons and England second rower Garath Archer could be on his way back to the club, having left the region to play for the financially-troubled Bristol after Newcastle's title win.
By Mark Smith