A Montreal native, the 45-year-old played for various incarnations of the Impact from 1993 to 2009 before serving as an assistant coach as the club entered MLS in 2012.
Biello took over as interim coach in August 2015 following the firing of Frank Klopas and was hired on a full-time basis after guiding the club to the Eastern Conference semifinals that fall. Biello then led Montreal to the 2016 conference final, but the Impact missed the playoffs this season while finishing ninth in the East at 11-17-6.
"Mauro spend his whole career here. He is a true builder of the club and of soccer in Quebec. The current situation does not change anything to what he represents for the club," Impact president Joey Saputo said in a news release. "I know this is a difficult moment for him and the decision was not an easy one for the club. We have gone through a very difficult season and we have not reached our objectives.
"Moreover, we have experienced recurring problems that have not been corrected. Today, almost three years after he has taken charge of the team, we think it is time for change."
Saputo, whose club has been linked to Miami FC coach and former Montreal defender Alessandro Nesta, said the Impact plan to hire a coach with international experience.