The 33-year-old took charge at Brisbane Road in January on a player-manager basis.
However, following a run of one point from four matches, chief executive Alessandro Angelieri has decided to act.
Andy Hessenthaler has been placed in interim control, while Nolan is expected to continue his playing duties.
"Everyone at the club is fighting hard to make sure we reach the playoffs this season," Angelieri said in a statement.
"While that aim remains within reach, we have decided that Kevin should focus entirely on his playing contribution until the end of the season. We believe that Kevin will be able to make a bigger impact on the team without the distraction of managerial duties.
"Andy Hessenthaler, who has been assisting Kevin over the past few months, will take charge of the first team in the interim."
The 11th-placed O's are currently two points adrift of the League Two playoffs.