The £95,000-a-year air chief was told to resign on Thursday by Malcolm Rifkind, Secretary of State for Defence, because he no longer had confidence in his judgement.
The request came in the wake of a leaked report by accountants KPMG Peat Marwick on how the money was spent on Haymes Garth, at Cheltenham, Gloucestershire, which was £137,000 over budget. The bill included £33,000 on curtains and £27,000 on interior design.
Sir Sandy will officially retire in July with a £50,000-a-year pension and a lump sum of around £150,000. Haymes Garth will be sold.
It has been suggested he has been made a scapegoat to deflect criticism from the Government, already embarrassed by stories about the lavish lifestyle of top executives. But senior armed forces sources said yesterday they felt Sir Sandy's decision was justified as a serious error of judgement by the RAF's head of personnel and training.
The sacking brought angry scenes in the Commons as MPs unsuccessfully demanded a Commons statement from Mr Rifkind.
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