The defeat which pushed the Black Cats two places closer and only one point above the relegation zone, saw them slipping to their eighth game without a win; picking up just two points in the process.
The 61-year-old Northern Irishman was in charge at the Stadium of Light for just 16 months having succeeded Steve Bruce in December 2011.
“Sunderland AFC has announced that it has parted company with manager Martin O’Neill this evening,” said a club statement.
“The club would like to place on record its thanks to Martin and wishes him well for the future.
“An announcement will be made in the coming days regarding a successor.”
O’Neill becomes the fifth top-flight manager to lose his job this season following the sackings of Roberto Di Matteo at Chelsea, Mark Hughes at Queens Park Rangers, Nigel Adkins from Southampton and Reading’s Brian McDermott.