"We announce the friendly and mutually agreed, termination of the contract with national coach Lito Vidigal," FAF said in a statement.
"Unfortunately the results and the performance of Palancas Negras at the 2012 African Nations Cup created an atmosphere which does not allow the coach's continuity."
FAF did not say who will replace the coach but added it would have to be someone who can refresh the team as they try to qualify for next year's African Nations Cup in South Africa and the 2014 World Cup in Brazil.
The Palancas Negras (Sable Antelopes), as the team are known, left a poor impression at the Nations Cup en route to being eliminated in the group stage.
Vidigal, who played for Angola at the 1998 Nations Cup, had steadied the Angolan ship after taking over last year, although they only qualified for the tournament thanks to a late slip-up by group rivals Uganda.
Despite the criticism, Vidigal described his players as "fantastic" and "true champions" after they were knocked out.