Guinea-Bissau's President Jose Mario Vaz dismissed the government amid a growing rift with Prime Minister Domingos Simoes Pereira, according to a statement read on state radio and television late on Wednesday.
Tensions, fed by overlapping duties in Guinea Bissau's semi-presidential system, have grown between the two men since civilian rule was restored to the chronically unstable West African nation in June last year following a 2012 coup.
Former colonial ruler Portugal warned earlier this week that the row risked sparking a serious political crisis that could endanger much needed development assistance.
Donors pledged more than 1 billion euros ($1.11 billion) in March to support the country after last June's elections. Since 1980, Guinea Bissau has undergone nine coups or attempted coups.
The government plans to retire nearly half the army's 5,000 soldiers, including former coup leaders, over the next five years as part of military reforms seeking to ensure long-term stability.
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