"This decision has been driven by our commitment to deliver the best possible outcomes for our loyal audiences and the best possible experience for our own people".
Mr Milne said the decision follows discussions with directors and Ms Guthrie, 53, over "several months".
Guthrie was named managing director of the ABC in December 2015, following her role at Google Asia, where she was managing director of agencies.
"As the first female Managing Director of the ABC, I felt a tremendous responsibility and unique privilege to lead Australia's most important cultural institution".
Milne said the decision had not been taken lightly but refused to detail what was wrong with Guthrie's leadership.
"I am considering my legal options", Guthrie said.
Under her leadership in March, 200 journalists were controversially retrenched from newsrooms to create a $50 million new Content Fund, where different divisions with new ideas could bid for funding.
The ABC managing director is appointed by the broadcaster's board, independent of government.
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Ms Guthrie started in the role in May 2016 and has battled internal tensions, a frosty relationship with the Coalition government and a tightening budget - at the same time as the ABC embarks on an ambitious bid to digitise its future.
Long-time ABC critic and Liberal MP Eric Abetz said Guthrie's replacement must bring to an end "the frolics masquerading as news and "comedy" from some ABC employees".
"By law, Managing Directors are selected by the ABC Board independently of the Government and Opposition of the day", the ABC noted in its statement.
But board chairman Justin Milne insisted no one from the government put any pressure on the board to sack her just two-and-a-half years into the job.
Monday's decision was apparently welcomed by some members of the ABC with 4 Corners executive producer Sally Neighbour, who tweeted "excellent decision" after the news broke.
"The board has given long and detailed consideration to this serious matter".
ABC managing director Michelle Guthrie has been sacked by the board.