John Elkann, grandson of Gianni Agnelli and chairman of the company that controls FCA, said the family was shocked by Marchionne's failing health.
A statement said: "Fiat Chrysler Automobiles N.V. communicates with profound sorrow that during the course of this week unexpected complications arose while Mr. Marchionne was recovering from surgery and that these have worsened significantly in recent hours".
The two men have worked together for 14 years and while they did not always agree, Elkann watched Marchionne create the company now known as FCA from the partnership of an ailing Fiat and a bankrupt Chrysler in 2008 that needed a business partner as a condition of exiting bankruptcy protection.
Kent-born Manley joined DaimlerChrysler in 2000, taking over as boss of Jeep in 2009. "It was a situation that was unthinkable until a few hours ago, and one that leaves us all with a sense of injustice".
Marchionne had planned to retire as CEO of FCA in 2019, but continue as head of Ferrari until 2021.
The boards of Fiat Chrysler, Ferrari and CNH Industrial were called to urgent meetings Saturday in Italy in light of executive Sergio Marchionne's surgery and prolonged convalescence.
Marchionne has overseen numerous changes that have returned Ferrari to success in recent years and was heavily involved in decisions on driver line-up and the team's overall direction. While the board had given Manley all the powers of CEO "with immediate effect", the move will need to be approved by a meeting of shareholders. The board will propose at the next Shareholder Meeting that he be elected to the board and serve as an executive director of the company. "My first thoughts go to Sergio and his family". He will also assume responsibility for the NAFTA region.
The FCA Group recently unveiled its five-year business plan running until 2022, focusing on the Alfa Romeo, Maserati, Jeep and Ram brands.