He was summoned to an emergency meeting with Spurs executive vice-chairman David Buchler and was told that the club could no longer work with him.
Spurs revealed that Graham was handed written warnings prior to his sacking for giving out what was deemed by the club as being private information.
It follows Graham leaking at a news conference details of his meeting this week with Tottenham's new owners Enic - with Glenn Hoddle and Gianluca Vialli instantly touted as possible successors.
But Graham responded defiantly, branding his shock dismissal as "bizarre and inexplicable."
A statement issued through his legal representatives said: "Mr Graham has already instructed his solicitors to deal with this matter and will be issuing legal proceedings very shortly if the club does not honour his contract."
Buchler had earlier revealed: "He has already had written warnings about this. It was absolutely clear the meeting we had was private, and Spurs cannot continue to be run in a manner where individual needs are put before the club's.
"We cannot conduct the affairs of Tottenham in the press, and I have summarily dismissed George Graham for breach of contract.
"At the meeting he was defiant, aggressive and may have had his own agenda.
"I can say, despite speculation, that we do not have a long list of managers ready to step into the breach here. We will take our time and think things through."
"I called George in and asked for an explanation. However no explanation was forthcoming and he had a defiant attitude.
"I am building from top to bottom a cohesive team and this is a difficult time for the club with a semi-final coming up and negotiations with players over contracts.
"We agreed we cannot work with each other. I am not prepared to have someone who is not a team player and who is not looking after the club's interests."
Buchler believes there was a hidden agenda behind Graham's comments to the media.
He said: "There has to have been another reason, from my point of view, as to why he made the statements he did at this particular time.
"The statement was made the same day, and he knew this, that I was having discussions with Sol Campbell's agent.
"I question the whole timing of it as this is a very delicate and important time for the club."
Buchler, however, admits there was never any intention behind the meeting of Graham parting company with Spurs, where he has been in charge since October 1998 after quitting Leeds.
"This was not a change I would have made voluntarily at this stage," stated Buchler.
Successor
"In terms of where we are, I had not thought about George Graham leaving the club. He had a contract with us for another year.
David Pleat will take charge of the team for Saturday's home clash against Coventry, with Tottenham's director of football "happy to step into the breach" according to Buchler.
Buchler, though, has no-one in mind for Graham's immediate successor, but it is expected the new man will be in place by 8 April when Spurs face Arsenal in their FA Cup semi-final at Old Trafford.
A list of candidates has already surfaced, including Hoddle, Vialli, Joe Kinnear and Terry Venables among others, and Buchler added: "They are all great names.
"But I did not anticipate it would come to this and I have not spoken to any other manager in relation to the job here. I have nobody else lined up.
"There are lots of names that will go into the hat and that is something I will be thinking about with the club chairman, Daniel Levy, during the course of the next week or two."