"We're not going to be in the Confederations Cup or in the Olympics -- and that's enough of a reason," said Mexican federation president Justino Compean after a unanimous decision by a committee comprised of directors of the Mexican First Division clubs.
Jesus Ramirez, who guided the Mexico to the 2005 U-17 World Cup title, has been named interim coach.
In 23 full internationals under Sanchez, Mexico won 12, lost eight, and tied three.
Sanchez's failure to qualify the U-23 team for Olympics was particularly disappointing considering the U-17s' 2005 world championship triumph and the U-20s quarterfinal appearance at the 2007 U-20 World Cup.
Sanchez, who was Mexico's greatest player, having won five Spanish La Liga scoring titles and scoring 47 times in 75 appearances for Mexico, won two Mexican league titles as coach of UNAM Pumas.
He was ejected more than a dozen times while coaching Pumas and lobbied hard for the national team job while relentlessly criticizing Mexico coach Ricardo La Volpe.
Once he did get the job, Sanchez failed to win the 2007 Gold Cup, losing to the USA in the final. He did guide Mexico to a 2-0 win over Brazil and a 6-0 thrashing of Paraguay later that summer at the Copa America, in which El Tri finished third.
But, aside from the U-23 failure, pressure on Sanchez increased with poor friendly game results such as last October's 3-2 loss to Guatemala.