Villas-Boas had been looking to rebuild his reputation in England that had plummeted after being fired eight months into a spell at Chelsea. It is unlikely now that another leading Premier League team will take a gamble on Villas-Boas, despite his successful stint in charge of FC Porto in the 2010-11 season when he guided the side to the Portuguese league title without losing a game, and also won the Europa League and the Portuguese Cup.
The Portuguese coach was halfway through a three-year contract at Tottenham.
Spurs haven't looked the same this season without Gareth Bale, whose record move to Real Madrid for 100 million euros ($US132 million) allowed the club to embark on a spending spree that brought in seven players, including Roberto Soldado, Paulinho, Erik Lamela and Christian Eriksen.
Bale won many games almost single-handedly for Tottenham last season, scoring 21 goals and being voted English football's player of the year.
Villas-Boas departs, however, boasting the best win percentage (53.7) in the league of any Spurs manager in the Premier League era.
"This is a top-four squad but in our Premier League form, we are not there,'' the 36-year-old Villas-Boas said after the Liverpool match, when he pledged that he wouldn't resign. "We admit that in the Premier League things aren't going in any shape or form the way we want.''
Villas-Boas is the fifth Premier League manager to lose his job this season, after Paolo Di Canio (Sunderland), Ian Holloway (Crystal Palace), Martin Jol (Fulham) and Steve Clarke (West Bromwich Albion).
Spurs announced later Monday that three members of Villas-Boas' backroom staff Jose Mario Rocha, Luis Martins and Daniel Sousa have also left.
Technical co-ordinator Tim Sherwood will take temporary charge of the first team along with coaches Chris Ramsey and Les Ferdinand, starting with Wednesday's League Cup quarterfinal against West Ham.
The British media speculated Monday that Fabio Capello was a potential replacement for Villas-Boas, even though the Italian is due to coach Russia at next year's World Cup in Brazil. A move to Spurs would see him reunited with Franco Baldini, his former assistant at England who is now Tottenham's technical director.
Other names reportedly in the frame are ex-Chelsea manager Roberto Di Matteo, Swansea manager Michael Laudrup and Baldini himself. The agent of Guus Hiddink ruled the respected Dutch coach out of the running today.
Whoever does succeed Villas-Boas will take over a team that has made it through to the knockout stage of the Europa League and is still in contention for a top-four finish in the Premier League. Spurs host West Ham in a League Cup quarterfinal match on Wednesday.
Tottenham's large squad is also crammed with talent, so the job would be enticing to many.
The new coach's first task would be improving the team's strike rate of only 15 goals in 16 league games this season and then shore up a defense that was breached with embarrassing ease by City and Liverpool over the past month.
- AP