It is understood Walsh, who is credited with helping to make 'X-Factor' a mainstay of ITV1's weekend schedule along with co-presenter Sharon Osbourne and creator Simon Cowell, will no longer work as a judge on the talent show, but will continue to manage acts off air.
Thornton, who joined the programme in 2004 and is a former editor of now-defunct Smash Hits, has been dropped from the programme, but according to reports, she will continue working at ITV in a different capacity.
The dramatic changes come less than a month before auditions for the fourth series get underway in April, with the next series expected to begin some time this summer.
ITV said axing Walsh as a judge and dropping Thornton as a presenter were the first major changes to the programme's format. The broadcaster is also lowering the age of entrants to 14, and will divide contestants in the 14- to-25 age group into male and female categories.
As with previous series, there will be a judge for each category, meaning an extra panellist will be joining the show, and early reports indicate have linked The BBC's Chris Moyles to the chair.
Moyles already has an asociation with 'X-Factor', he was a big hit with audiences when he appered on spin-off series 'X-Factor: Battle of The Stars' last year and sang the Oasis classic 'Wonderwall'.
In the running to replace Thornton is former presenter 'CD:UK' Cat Deeley, former Hear'Say singer and 'Popstars' winner Myleene Klass, Irish TV personality Patrick Kielty and 'Strictly Come Dancing Host' Tess Daly.
Paul Jackson, director of entertainment and comedy at ITV, said: "To keep the show in its number one spot, we are always looking at ways of making the format as fresh and exciting as ever, and having an extra judge and an additional category will give it a whole new dimension."
Meanwhile, 'X-Factor' is being subject to an internal investigation at ITV over financial irregularities with the programme's phone voting system. Voters in the last series were charged 15p extra for every vote cast, creating a surplus £200,000 in revenue.
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