The decision to dismiss Mandelson was made following the release of Mandelson's letters to Epstein this week.
Epstein was charged with sexually abusing dozens of underage girls and trafficking them for sexual exploitation. Without waiting for a trial, Epstein committed suicide in a federal detention center in New York in August 2019, the day after documents were released that shed more light on the sex trafficking ring he ran from 2002 to 2005.
Mandelson's letters to Epstein suggest their relationship was much closer than was believed at the time Mandelson was appointed ambassador, the British Foreign Office said.
The Sun newspaper published emails on Wednesday in which Mandelson advised Epstein to"fight for early release" shortly before he was sentenced to 18 months in prison.
The emails were released after Democrats on the U.S. House Oversight and Government Reform Committee released a greetings album given to Epstein on his 50th birthday. In his handwritten greeting, Mandelson called Epstein his best friend.
Democrats on the US Congressional Committee also released a birthday greeting addressed to Epstein, allegedly signed by US President Donald Trump.