André Villas-Boas has been sacked by Tottenham Hotspur in the wake of Sunday's humiliating home defeat to Liverpool, the manager departing White Hart Lane after barely 18 months in charge with faith that he was capable of securing Champions League qualification having been eroded within the club's hierarchy.

The Spurs chairman, Daniel Levy, and the technical director Franco Baldini had spoken briefly with Villas-Boas in the aftermath of the harrowing 5-0 defeat, with Villas-Boas emerging to insist he would not resign. There were further talks on Monday, before the club issued a statement confirming his departure was "by mutual consent and in the interests of all parties". The club's technical co-ordinator, Tim Sherwood, will oversee Wednesday's Capital One Cup quarter-final against West Ham United and could yet be placed in caretaker charge until the end of the season.

Villas-Boas' position had been severely undermined by his team's toils this season, despite Spurs' comfortable progress out of their Europa League group and seventh place in the Premier League. They are only five points adrift of Manchester City in fourth, and eight from Arsenal at the top, yet the nature of their defeats in direct confrontation with the title contenders had a profound effect on the manager's standing. City had beaten Spurs 6-0 at the Etihad Stadium a little over three weeks ago and, while the comprehensive nature of that defeat had been shocking, it actually merely served to expose deeper concerns within the club's boardroom over the manager's position.

Levy and the club's owner, Joe Lewis, had been angered initially by a 3-0 home defeat to West Ham in the first week of October, a result which prompted an intense examination of Villas-Boas' suitability to fulfil Spurs' longer-term ambitions. The hierarchy had sanctioned around £109m of spending over the summer on seven players, including three club record fees, reinvesting the money raised by Gareth Bale's sale to Real Madrid. Yet the new personnel, while boasting reputations on paper, have taken time to adapt to the Premier League with the team's rather stodgy and conservative play having failed to enthuse those in the boardroom.

How the Guardian reported Villas-Boas being on the brink at White Hart Lane last month. Photograph: Guardian

Home matches have not been particularly enjoyable, with some players having wanted to see Villas-Boas adapt his favoured 4-2-3-1 formation and play with two strikers to increase the side's attacking potential. The whole fit has appeared rather awkward in recent weeks and, while the manager survived the defeat to City and recovered seven points from games against Manchester United, Fulham and Sunderland, the thrashing instigated by Liverpool was the last straw.

Spurs have managed three points, at home to Chelsea and United and away at Everton, from six games against last season's top seven clubs, with Villas-Boas having admitted on Sunday that the "excessive" nature of the last two defeats had hurt his side psychologically.

The loss of Bale, such a match-winner last season, should not be underestimated as a contributory factor, but the inability to manage the transition since the forward's sale and coax more coherent attacking displays from a lavishly revamped side – they have scored 15 goals in 16 league games – has prompted Levy and Lewis to act. The likes of Roberto Soldado and Erik Lamela, in particular, have failed to justify their fees of £26m and £30m respectively, with Villas-Boas having hinted in his post-match briefing on Sunday that the personnel at his disposal, recruited by Baldini on his and the board's behalf, may not have been his choice.

The manager had appeared to lose the support of the Tottenham crowd as well, perhaps a legacy of his claim in the way of the 1-0 win over Hull City on 27 October that White Hart Lane offered a "very tense, difficult atmosphere". He said it was "like it drags the ball into our goal, instead of the opponent's goal", adding: "This is something that is felt within the squad. It's a feeling that invades us in fixtures like this."

There were veiled criticisms, too, of the club's medical department after Hugo Lloris suffered a head injury in the goalless draw at Everton which served to reinforce the impression, perhaps unfairly, that he was shifting the blame for the team's toils elsewhere.

Villas-Boas was contracted until the summer of 2015 and, following a brief and unhappy tenure at Chelsea which had ended abruptly in March 2012, may now seek to re-establish his reputation, forged brilliantly at Porto, abroad. "The club can announce that agreement has been reached with head coach, André Villas-Boas, for the termination of his services," read the club's statement. "The decision was by mutual consent and in the interests of all parties."