City's shock FA Cup Final defeat by Wigan at Wembley on Saturday meant they ended this season without any silverware and strengthened rumours Mancini, who replaced Mark Hughes in 2009, was about to be dismissed.
The club's Abu Dhabi-based owners confirmed Monday the end of the Italian manager's three-and-a-half years at Eastlands, with a City statement saying: "It is with regret that Manchester City Football Club announces that Roberto Mancini has been relieved of his duties as Manchester City manager.
"This has been a difficult decision for the owner, chairman and board to make and it is the outcome of a planned end-of-season review process that has been brought forward in light of recent speculation and out of respect for Roberto and his extensive contributions to the football club.
"Despite everyone's best efforts, the club has failed to achieve any of its stated targets this year, with the exception of qualification for next season's UEFA Champions League."
"This, combined with an identified need to develop a holistic approach to all aspects of football at the club, has meant that the decision has been taken to find a new manager for the 2013-14 season and beyond."
City's Champions League qualification has been overshadowed by the uninspiring nature of their title defence, with the club a distant second to already crowned English champions Manchester United and 13 points adrift of their local rivals.
The 48-year-old Mancini's time at City saw the club win a first major trophy in 35 years with the 2011 FA Cup, while last season's Premier League title was their first top-flight crown since 1968 and saw the manager rewarded with a new five-year deal.
"Roberto's record speaks for itself, he has clearly secured the love and respect of our fans," said City chairman Khaldoon Al Mubarak.
"He has done as he promised and delivered silverware and success."
But City's second succesive group stage exit in as many seasons from the lucrative and prestigious European Champions League appears to have weighed heavily againstMancini, for all that fans were chanting his name during the FA Cup Final at Wembley.
Those shouts of support cut little ice with City owner Sheikh Mansour, clearly demanding more from a colossal investment in a club whose reported wage bill of £200 million ($306 million) is the highest in the Premier League.
Reports in Spain and England have suggested Manuel Pellegrini, the Malaga coach is in line to succeed Mancini although the Chilean denied Monday he'd signed a contract with City chiefs.
"I deny here and now being the new coach of Manchester City, I haven't signed any agreement with anybody," Pellegrini said.
"I've been fortunate enough, and very proud, that every year the big clubs have shown an interest in me. I have an agreement with Malaga not to talk to anyone and nothing has been agreed with any other club."
Brian Kidd, Mancini's assistant, having performed a similar role at United and played for both Manchester clubs, will take charge of City's final two matches of the season, starting with the Premier League fixture away to Reading on Tuesday.
Mancini's sacking came on the same day United celebrated the 13th and final Premier League title of veteran manager Alex Ferguson's Old Trafford reign of more than 26 years, with an open-top bus parade through Manchester.
The 71-year-old Scot is retiring at the end of the season having -- unlike Mancini and many other managers -- quit at a time of his own choosing.
Even a few weeks ago the prospect of both Manchester clubs needing new managers would have seemed outlandish.
United have though already appointed Ferguson's successor, with David Moyes, currently the manager of Everton, due at Old Trafford in July.