Paolo Di Canio has been installed as the odds-on favourite to take over as the manager of Reading, following the sacking of Brian McDermott, although the Italian could face stiff competition from his compatriot Roberto Di Matteo.

Di Canio, who ended his eventful 21 months in charge of Swindon Town three weeks ago, watched Reading's 2-1 defeat by Aston Villa at the Madejski Stadium on Saturday. McDermott left his job with the Royals lying second bottom of the Premier League, despite the 51-year-old having guided the club to the top flight last season.

Di Canio holds appeal because he is out of work after quitting Swindon, whom he led to promotion from League Two as champions in April. He has been linked with a possible return to West Ham United should Sam Allardyce not extend his contract beyond this summer but it is his choice of weekend match venue which has triggered fervent speculation.

Di Matteo, though, is also a leading candidate. He was jettisoned by Chelsea last November, six months after winning the Champions League, and has not worked since. Whether he would be willing to step back into English football in a relegation battle remains to be seen. Nigel Adkins has also been linked with Reading but his situation is complicated by the fact he is not yet thought to have agreed a settlement over compensation with Southampton, who sacked him in mid-January.

In a statement yesterday Reading confirmed what had appeared inevitable after bookmakers suspended betting on McDermott becoming the next Premier League manager to lose his job.

Only 33 days earlier McDermott had been named the Premier League's manager of the month for January. During that spell they defeated West Bromwich Albion and Newcastle United and drew with Chelsea in league matches. Yet the intervening weeks have been more harsh. Reading have won only once, against Sunderland, and McDermott ended with five defeats in a row, including those by their relegation rivals Wigan Athletic and Villa.

The club statement said: "Owner Anton Zingarevich wishes to place on record his thanks to Brian who had achieved great success with the club since taking over as manager in December 2009. Brian gained promotion to the Premier League last year for only the second time in the club's history thanks to a remarkable run at the end of last season. However, in our current situation the owner, Anton Zingarevich, felt that a change was necessary.

"The search for a successor will start immediately. It is hoped a new manager will be in place as soon as possible to lead the fight against potential relegation."

McDermott received instant sympathy from members of the playing staff. "I'm saddened really because he's been absolutely fantastic for us - for me personally and for the club," the Reading forward Jason Roberts told Sky Sports News.

"I think he's been a victim of his own success in some ways and I'm sure he's going to be disappointed. But as you know football is a results business and I'm sure he'll say that as much as anybody else. The performances we've given on the pitch up until now, to allow Reading to be in the Premier League and to be in the position we are now, have been over and above what people would have expected.

"In the Premier League we would have liked to have done better and liked to have been out of the relegation zone but I think it's an important time to look back and see all the success Brian McDermott has achieved at the club and what this group of players has achieved."

The forward Noel Hunt added via Twitter: "He's been a great manager, man and friend to me and will be missed."

The coach Nigel Gibbs has also left the club and Eamonn Dolan, the academy head, is in temporary charge.