Antonio Oliveira is to be replaced as Portugal coach following the country's dismal display at the 2002 World Cup.
The decision was announced by Gilberto Madail, chief of the Portuguese Soccer Federation on Tuesday, but Oliveira was not available for comment.
"The federation's decision is that he cannot continue in the job," said Madail.
Details of Oliveira's financial severance are unclear.
Madail said the federation sent him a fax proposing an amicable agreement to end his contract, which expires in 2004.
Under Portuguese law, if the federation fires Oliveira it may still have to pay him roughly 400,000 euros.
"If he doesn't accept, we will have to look at our legal and soccer options," Madail said.
Portugal's star-studded team crashed out of the World Cup in the group stage after shock losses to South Korea and the United States.
Critics accused Oliveira, 50, of poor preparation and misguided tactical decisions and he had offered to resign in the wake of his team's early exit.
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