The 54-year-old Butler, recognized as one of the best at spotting talented players, was in the final year of his contract, and he was being courted by other teams. News of his firing was first reported by the Buffalo News.
"John Butler has been dismissed of his duties as executive vice president and general manager of the club effective immediately," owner Ralph Wilson said in a statement.
"The reason for the dismissal is because John has refused to give me an answer as to his future intentions," Wilson said. "The time has come to move forward and therefore I can wait no longer to see who will be the Bills' general manager after this season."
A source close to Butler's family, speaking on condition of anonymity, said Wilson broke the news to Butler in a phone call to Alabama, where he was on a scouting trip.
The team has made no announcement on a successor.
Butler has been mentioned as a candidate to become the next general manager for the San Diego Chargers, without a GM since Bobby Beathard retired last spring.
Butler, general manager since 1993, broke into the NFL as a scout with the Chargers in 1985 before being named Buffalo's director of college scouting in 1987.
The Bills (7-8) went to the Super Bowl in Butler's first season, losing to the Dallas Cowboys 30-13. The team made the playoffs in five of Butler's seasons as GM.
During the 1990s, the team posted the second best won-loss record in the league.
The team has struggled this year and missed the playoffs after a season that saw a public feud between quarterbacks Rob Johnson and Doug Flutie. The Bills were also hamstrung by the NFL salary cap, which forced the team to purge 16 players last off-season, including veterans Bruce Smith, Thurman Thomas and Andre Reed.
In early December, with the playoffs out of reach, Butler challenged the team to end the season on a strong note. Instead, the team fell to last-place New England, 13-10. The Bills close out their campaign this Saturday at Seattle.
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