The loss came a month after Australia were hammered by the same scoreline by Brazil to open up fierce debate about the side's hopes of a competitive performance at the World Cup in eight months.
Football Federation Australia CEO David Gallop addressed the team in the dressing room after the mauling at the Parc de Princes to inform them of Osieck's immediate axing.
FFA Chairman Frank Lowy said the long-term interests of Australian football were paramount in making the change.
"The decision is based on the longer term issues of the rejuvenation of the Socceroos team and the preparations for the World Cup and the Asian Cup," Lowy said.
"FFA has set a strategic objective of having a highly competitive team in Brazil and then handing over a team capable of winning the Asian Cup on home soil in January 2015.
"We have come to the conclusion that change is necessary to meet those objectives.
"I thank Holger for his contribution to Australian football and wish him well in his future endeavours."
Assistant coach Aurelio Vidmar will stand-in as caretaker for the game against Canada in London (Wednesday AEDT) with fans' favourite Guus Hiddink, who led the Socceroos to the 2006 World Cup, Marcelo Bielsa and even Gerard Houllier among those touted to be on the FFA hit list.
Melbourne Victory's Ange Postecoglou, Western Sydney's Tony Popovic and Central Coast's Graham Arnold could also be considered.
"I have given our new Head of National Performance Luke Casserly and the National Technical Director Han Berger the task of conducting a review of our World Cup planning," FFA coach David Gallop.
"The review will include all aspects of the technical and logistical preparations, national teams unit staffing and the appointment of a new Head Coach.
"The World Cup kicks off in eight months and the Asian Cup is 15 months away. We are determined to make the most of the historical opportunities that these tournaments present to Australian football.
"FFA will give the highest priority to these projects because the Socceroos are the standard bearers for Australia on the world stage."
Australia has now lost its past four internationals - against Japan, China, Brazil and France - with defeat against Canada to equal an unwanted record of the most losses in succession for the Socceroos.
Despite guiding Australia to Brazil 2014, Osieck was under heavy pressure coming into the France match.
"It was absolutely disappointing because the things we worked on in training didn't come together," Osieck said in a post-game television interview.
"Right now, we are definitely away from the international standard of the top teams but we shouldn't drop our heads."
When quizzed about his future, Osieck replied: "It's not up to me. It is food for thought. I have been around for many years and I know what can come up. It becomes part of the discussion and merits of the past are forgotten."
The heavy loss will only compound speculation that Osieck has 'lost the dressing room'.
When asked if the players were behind him, he said: "What is behind? It doesn't matter. They have to perform - that's what is required in the game. Other than that, it doesn't mean anything. It doesn't count."
SOCCEROOS COACHING CANDIDATES:
GRAHAM ARNOLD
The 50-year-old coach of A-League club Central Coast Mariners says he'd love to coach the Socceroos. Has proven himself a successful development coach, and been anassistant for Australia in their past two World Cup finals campaigns, in 2006 and 2010.
GUUS HIDDINK
Took Australia on the ride of its World Cup life in 2006, when downed by Italy in the round of 16. The 66-year-old Dutchman wants a top job for next year's Cup, is available and is believed to have already been sounded out by the Australian hierarchy.
GERARD HOULLIER
The 66-year-old Frenchman, who watched the Socceroos get thumped by France, is known to have powerful allies within Football Federation Australia. The former France and Liverpool boss last coached Aston Villa in 2011 but left due to heart problems.
MARCELO BIELSA
The 58-year-old Argentine has coached Argentina and Chile. His most recent posting, as Athletic Bilbao coach, ended in June. Tough and uncompromising, he's renowned as a master tactician who pores endlessly over every video and statistic available.
ANGE POSTECOGLOU
The 48-year-old has impeccable credentials on the Australian stage, initially as Brisbane Roar boss and now with Melbourne Victory. A proven developer of young talent, he coached Australia's under-20 side for seven years until 2007.
FRANK RIJKAARD
The 51-year-old Dutchman's curriculum vitae contains coaching stints with The Netherlands and Barcelona. Most recently, he was dismissed as Saudi Arabia's coach in January. An attacking coach who gives creative licence to his players.
AURELIO VIDMAR
The Socceroos' assistant coach will take the reigns for Australia's mid-week clash with Canada in London. The 46-year-old is the young Socceroos' coach and a former national captain and Adelaide United boss.
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