The 52-year-old and national team coordinator Gilmar Rinaldi were told of their fate during a meeting with Brazilian football confederation (CBF) president Marco Polo Del Nero in Rio de Janeiro on Tuesday afternoon, Xinhua reported.
The favourite to replace Dunga is 55-year-old Corinthians coach Tite, who guided the Sao Paulo club to last year's Brazilian Serie A title.
"The CBF communicates that it has decided to dismiss the technical committee of the Brazilian national team," the CBF said in a brief statement on its official website.
"Those that will leave their positions are Gilmar Rinaldi, Dunga and his backroom staff. The decision was made by mutual consent ... Now the CBF begins the process of looking for a new coach. The CBF thanks (Dunga and his staff) for their dedication and commitment to the job."
The announcement came two days after Brazil's 1-0 loss to Peru in Foxborough, Massachusetts.