"After a meeting held this morning... with CBF president Ricardo Teixeira, coach Carlos Alberto Parreira left the Brazilian national team," said a statement on the CBF's official Web site.
"It was a joint decision and Parreira will not have, from today, any professional connection with the Brazilian Football Confederation."
Former Real Madrid coach Vanderlei Luxemburgo, who was in charge of Brazil from 1998 to 2000, and former Sao Paulo and Peru coach Paulo Autuori are the favourites to take over.
Parreira, who led Brazil to their fourth world title in 1994, had been at the helm since the start of 2003 in his third stint in charge of the national team.
He won the 2004 Copa America and the 2005 Confederations Cup, on both occasions beating arch-rivals Argentina in the final.
Parreira was also Brazil coach for one year during the mid 1980s.
Brazil lost 1-0 to France at the World Cup after starting as hot favourites and Parreira's departure had been widely expected since their premature exit on July 1.
He was widely criticised for persisting with veteran fullbacks Cafu and Roberto Carlos as well as striker Ronaldo when he appeared to be short of match fitness.
Critics also said Parreira's team was excessively cautious and that he failed to coax the best out of talents such as Ronaldinho and Kaka.
Brazil were widely regarded as the biggest let down at the finals in Germany.
No coach has ever carried on as coach of Brazil after failing to win the World Cup although the late Tele Santana, whose memorable side fell at the second group stage in 1982, later returned to lead the team four years later in Mexico.
However, there had been speculation that Parreira would continue or be moved up to an administrative post.
The CBF, however, said the 63-year-old, who also coached Kuwait at the 1982 World Cup, United Arab Emirates in 1990 and Saudi Arabia in 1998, wanted more time with his family.
"The coach said he needed to dedicate himself to his family and unwind after nearly four years at the helm of the Brazilian national team," said the CBF.
"The new coach will be announced shortly."