City lost only twice in 17 league games, but a string of draws that left it in sixth in the Premier League standings, far off the lead.
"A return of two wins in 11 Premier League games is clearly not in line with the targets that were agreed and set," chairman Khaldoon Al Mubarak said in a statement. "[Owner] Sheikh Mansour and the board felt that there was no evidence that the situation would fundamentally change."
Abu Dhabi's Sheikh Mansour bought the club in September 2008 and pumped millions into it, buying Robinho, Carlos Tevez, Gareth Barry, Emmanuel Adebayor, Kolo Toure, Roque Santa Cruz and Joleon Lescott.
"The targets were agreed as a result of the player acquisition strategy of the club being radically accelerated in the summer as a result of very favorable conditions for any buying club," Al Mubarak said. "It was also based on the fact that the infrastructure of the club had been overhauled completely at great cost in order to create the best possible environment for the team."