As the elderly head of state sought to quell infighting over his successor, the chief secretary to the cabinet, Misheck Sibanda, said in a terse statement that Joice Mujuru had been fired.
Also sacked were her allies in the ministries of energy, public service, and half a dozen other departments, he said.
The move caps a long campaign by Mugabe and his closest lieutenants to isolate the 59-year-old Mujuru and her supporters.
Once seen as the favourite to step into the shoes of Mugabe, who is now 90, she has come under increasing attack, notably from Mugabe's increasingly powerful wife Grace.
Critics have accused Mujuru of plotting to assassinate the president and of dodgy business dealings.
"It has become evident that her conduct in the discharge of her duties had become inconsistent with the expected standard," Sibanda said in the statement.
He also blamed Mujuru for "conflict between official responsibilities and private interests".
Mujuru earlier Tuesday blamed "a well-orchestrated smear campaign and gross abuse of state apparatus" for the loss last week of her powerful position on the ruling party's central committee.
Her ouster shook Zimbabwean politics.
– 'Fly in web of lies' –
The ruling ZANU-PF party last week met for a closely-watched congress to elect its officials, finally endorsing Mugabe as president and his high-profile wife Grace as head of the women's wing.
Mujuru said she was being victimised after exposing infiltrators conspiring to destroy the party, which has ruled the country since independence in 1980.
"I have become the fly in the web of lies whose final objective is the destruction of ZANU-PF and what it stands for and ultimately the present government," Mujuru said in a statement.
"A vociferous attempt has been made to portray me as 'a traitor', 'murderer' and 'sellout', yet no iota of evidence has been produced to give credence to the allegations."
The ZANU-PF has been riven by factionalism over Mugabe's succession but in the past party leaders managed to paper over the cracks.
The public battle with Mujuru not only has rocked Zimbabwean politics but has put 68-year-old Justice Minister Emmerson Mnangagwa firmly in top position to replace Mugabe.
Mnangagwa is seen as a hardliner who in the past controlled the secret police and military.
Mujuru did not attend last week's party congress following threats against her and her sympathisers by members of the party's youth league.
"I decided to stay away from inevitable public humiliation as was meted out to other unfortunate members of the party," she said.
"It was important to maintain the dignity of the office of the vice president even in the face of such unwarranted violence by a section of the party membership."
Mujuru is a former guerrilla fighter who had held cabinet posts in every Mugabe government since independence in 1980.
Some cite another possible candidate as Grace Mugabe, who has also been called "Gucci Grace" and "First Shopper".
The reports follow the election of the 49-year-old former typist to a top post as head of the ruling ZANU-PF party's women's wing.
After her nomination as head of the ZANU-PF women's league in August, Grace immediately launched a sustained campaign against Mujuru, accusing her of corruption and plotting to topple her husband.
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