A compensation deal has been hammered out between Eriksson and FA chief executive Brian Barwick, which it is understood will see the Swede being paid off with around £3m (€4.35m), a third of the £9m (€13m) he would have earned from two years’ salary.

The process of finding a successor will begin almost immediately but the organisation’s leaders will not be hurried into making a decision.

A day of intense negotiation between Eriksson and Barwick ended with the official confirmation that the Swede’s reign is to come to an end after the finals.

The announcement follows successive weekends of damaging revelations in the News of the World, after an undercover reporter posing as a rich Arab sheikh duped Eriksson into believing he wanted to give the Swede a new job.

Eriksson said in a statement tonight: “I am happy that we have reached this agreement and can now continue our preparations for the World Cup.

“I know that I have the full support of the players and the FA and it is important to stress to everyone just how committed I am to achieving success this summer.

“I care passionately about this job and I want everyone to know that. I have always enjoyed the incredible support of the fans and I know how important they will be to us in Germany.

“This summer is the culmination of everything we have been working towards over the last five years. Let’s go and win the World Cup.”

Barwick added that it was vital to end the speculation surrounding Eriksson’s future.

He said: “The FA and Sven felt it was important to clarify his future. This is for the benefit of everyone connected with English football, especially the fans.

“There has been so much speculation surrounding this matter in recent weeks and months, it was important to resolve it now.

“This is the right outcome and I would like to thank Sven and his advisors for their tremendous co-operation.

“As I have said before, our main objective is giving Sven and the England team the best chance of achieving success at the World Cup.

“Sven is definitely the man to lead us in Germany.

“Now is the time for everyone to get behind the team as we prepare for a tournament that presents us with a genuine chance of success.”

Both sides are understood to be satisfied with the terms of the compensation deal. Eriksson could have earned £9m (€13m) over the remaining two years, but instead will take the pay-off and can start looking for a new job.

The announcement will spark a rush for what is the best-paid job in international football, and FA chiefs have some tough decisions to make over whether they want an Englishman in charge or whether they should pick another foreigner with proven international experience.

One thing they will be is careful. After Eriksson’s affairs with Ulrika Jonsson and Faria Alam, and on three occasions being found out to have had talks about leaving England for a Premiership club, the FA will want someone who is loyal and sensible as well as a world-class coach.

The final nail in Eriksson’s coffin came as a result of a deception. Eriksson told an undercover reporter dressed as a ‘fake sheikh’ he would quit as England coach if they win the World Cup this summer, and suggested the Arab buy Aston Villa and pay him £5million a year after tax to be coach.

He also made indiscreet comments about senior England players, and suggested some Premiership managers took bungs when arranging transfers.

Howard Wilkinson, the former FA technical director who as England caretaker manager was Eriksson’s predecessor, reacted with surprise.

Wilkinson said: “I am shocked and disappointed. In the sense that we have got done possibly the hard part of qualifying for a World Cup and we have got probably our best chance of succeeding since 1966. This is less than ideal.

“If one could have picked a set of circumstances to lead up to the World Cup this would not have been high on the list.

“That will put an end to the speculation, but that will be followed by speculation on who is going to succeed him.

“If you sit down and write pros and cons, in an ideal world you would not have written this scenario, but we have a fantastic squad of players, it’s the biggest competition there is and one has to hope the prize becomes bigger than the circumstances surrounding the last few weeks.

“My point of view as chairman of the League Managers’ Association is we would hope that English contenders for the position have got more than a head start.”