The decision was announced shortly after the Brazilian Football Confederation (CBF) president Ednaldo Rodrigues was reinstated following a legal dispute.
Diniz, who had been balancing his role with coaching Fluminense, faced criticism for Brazil's underwhelming performance in World Cup qualifiers.
The team managed only two wins in six matches, drawing once and losing three times, including a notable defeat to arch-rivals Argentina.
The CBF has swiftly moved to appoint Dorival Júnior, currently coaching São Paulo, as Diniz's replacement.
Dorival, who has a rich coaching history with numerous clubs and notable successes with Flamengo and São Paulo, is seen as a stabilizing figure for the team.
This change comes amid Brazil's challenging position in the South American World Cup qualifying standings, where they are currently sixth.
The team aims to improve its performance under Dorival's leadership as they prepare for the upcoming Copa America and continue their World Cup qualifying campaign .
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