Ethiopia lost 7-1 to Algeria in March and then drew 3-3 at home with the same opponents the following month despite being in the lead on three occasions.
The poor performance of the Walyas - named after an antelope endemic to the Horn of Africa country - has left them trailing by five points behind Algeria's Desert Foxes in Group J with two matches to play.
In a statement, the Ethiopian Football Federation cited "unmet targets" for Sahile's dismissal along with members of the federation's technical committee.
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The body said it has picked Sahile's successor but would disclose his identity only in the "next few days" once terms had been agreed.
Sahile, an American of Ethiopian descent, is the third manager to be given his marching orders since Ethiopia came within two matches of a first-ever World Cup appearance in Brazil two years ago.
But Ethiopia's fortunes have since waned and the Walyas failed to qualify for last year's Nations Cup after finishing bottom of the group with just one win.
They next face Lesotho and Seychelles in June and September, with table toppers Algeria needing a solitary point to ensure their progress to next year's finals in Gabon.
(Editing by Elias Biryabarema and Richard Balmforth)
