Mancini watched City's thrilling 4-3 home win over Sunderland on Saturday.
City chairman Khaldoon Al Mubarak outlined his reasons for the decision and admitted it was a 'particularly difficult announcement' to make.
"Prior to the current season beginning, with significant investment in players and infrastructure in place, the consensus between the Board and coaching staff was that appropriate agreed targets should be set for the 2009/2010 season," said Al Mubarak on the club's official website.
"The targets were agreed as a result of the player acquisition strategy of the club being radically accelerated in the summer as a result of very favourable conditions for any buying club. It was also based on the fact that the infrastructure of the club had been overhauled completely at great cost in order to create the best possible environment for the team.
"A return of two wins in 11 Premier League games is clearly not in line with the targets that were agreed and set. Sheikh Mansour and the Board felt that there was no evidence that the situation would fundamentally change.
"This is a particularly difficult announcement given the personal investment over the past 15 months on all sides and we would like to put on record our respect for and thanks to Mark Hughes and we wish him the best in his future career."
Commenting on the appointment of Mancini Khaldoon Al Mubarak said: "Roberto is a hugely experienced manager with a proven track record of winning trophies and championships. His experience and track record speak for themselves.
"What is absolutely clear is that Roberto believes in Manchester City's potential to achieve at the highest level and importantly in his own ability to make this happen. My hope is that our incredible fans will join us in welcoming Roberto to the football club."