After replacing Pat Fenlon in Novemeber, Butcher managed just two victories in his last 21 matches - a run which eventually culminated in the club’s relegation to the Scottish Championship after a penalty shoot-out defat to Hamilton.
New Hibernian chief executive Leeann Dempster admitted sacking Butcher was a difiicult decision but insisted the club must move forward and identify the right man who can get the club promoted at the first attempt.
"I have to say that we all regret that this decision had to be made, but during conversation it became clear that a different approach was needed,” Dempster said.
"Sadly, for a variety of reasons and perhaps including unfortunate timing, it hasn't worked out for Terry here. That is disappointing for all concerned. I am genuinely saddened that we have had to take this tough decision.
"It may have taken longer than we all would have liked but I felt it was appropriate that we met properly and had a full discussion before any decision was made.
"Now we need to move forward and act to bring in a new manager with the aim of getting us promoted back to where Hibernian belongs, in the top league of Scottish football, from a uniquely competitive Championship.
"Our first aim must be to try to win the league and gain promotion automatically.
"The search now begins to find and appoint the next manager, and while we will try to keep supporters updated regarding the process as much as we can, I know they will understand that we need to be professional in all that we do.
"Unfortunately assistant manager Maurice Malpas is abroad on holiday at present and I want to meet him on his return to explain the situation at the club."
Hibernian released 10 players following their relegation from the Scottish Premiership. Sky Sports News reporter Charles Paterson explained why the decision to remove Butcher from his post was taken now as oppose to then.
He said: “Terry Butcher and Leeann Dempster the new Hibernian chief executive met yesterday and there have been continued discussions today. As a result of course Terry Butcher is no longer the Hibernian manager.
“The reason for the timing of this now and not so much the end of the season is the internal structural change that has taken place at Hibs.
“Leeann Dempster, the new chief executive, started work yesterday. She’s come from Motherwell and she’s regarded as a very shrewd operator indeed.
“She has taken over the executive business from Rod Petrie, the Hibernian chairman who is the subject of much criticism at the moment from Hibs supporters who were of course enraged when the club were relegated.
“Plenty of them have been calling for Petrie’s removal and Butcher’s removal as well. There were protests at Easter Road on Saturday and we heard from Leeann Dempster then saying that she was certainly not going to be making a decision on Terry Butcher’s future until she had met him face-to-face.
“The first chance Dempster and Butcher had a chance to speak to each other face-to-face was yesterday and today we have this resolution that Terry Butcher has been relieved of his duties and Hibs are looking for another manager.”