PHOTO: AFP
The 53-year-old former Real Sociedad and Zaragoza boss won just two of six games since taking charge last October as star-studded Vissel slipped to 10th place in the 18-team J-League top flight.
Kobe officials said Lillo had left the club by mutual agreement.
Iniesta signed for Kobe last May in a historic J-League deal worth a reported $30 million a year.
The World Cup winner, who lifted 32 major trophies with Barcelona, plays alongside former Germany striker Lukas Podolski and former Barca and Spain team mate David Villa.
Vissel were expected to mount a serious challenge for the J-League title with the 34-year-old's arrival but finished 10th last season, and fellow Spaniard Lillo has failed to improve his talented side's results, despite the efforts of Iniesta.
Seven points off table-topping Hiroshima and FC Tokyo, Kobe have leaked nine goals in their last three matches.
Iniesta created two of the goals in Kobe's 4-2 home defeat by Hiroshima last weekend but was clearly in a foul mood when he walked off the pitch, barking "no comment" as he stormed past waiting reporters.
Iniesta's signing was viewed as a timely boost to the J-League, which once attracted luminaries such as Brazilian great Zico and former England striker Gary Lineker when it began in 1993 but has struggled to tempt marquee players in recent years.
But the 34-year-old has already hinted at a return to Barca in some capacity, recently telling Radio Marca: "I don't know what role I would occupy, but in any case Barcelona can count on me."
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