Manchester United regained the title last month with four games to spare and City were then beaten 1-0 by Wigan Athletic in last Saturday's FA Cup final.
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"It is with regret that Manchester City Football Club announces that Roberto Mancini has been relieved of his duties as Manchester City Manager," the club said in a statement.
"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."
Assistant manager Brian Kidd will be in charge for City's remaining two games of the season and the post-season tour to the United States.
"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," the statement said.
It was the end of a 35-year wait for a trophy and a tangible reward for the huge funds invested by the club's Abu Dhabi owners.
Hoping this might be the start of many titles to come, City's defence of their crown never really got off the ground this season.
