End of England's £6m man as race row leaves FA wrongfooted

Decision follows criticism of paymasters' move to strip John Terry of captaincy

The England football manager Fabio Capello resigned last night, just four months before the team play in the finals of the European Championships after a bitter row over alleged racism proved too damaging for either the coach or the sport's governing body to contain.

Capello felt he was left with little option but to quit after the Football Association overruled him by stripping John Terry of the captaincy last week. The Italian's employers acted after the Chelsea defender's trial for alleged racist abuse of the Queens Park Rangers player Anton Ferdinand was delayed until July – meaning that Terry and his teammates would have to play under a divisive cloud of disagreement and resentment. Yet Capello was determined to back his chosen leader.

The reign of 65-year-old Capello – who will be characterised as the England manager who didn't speak much English and whose tenure was scarred by behind-the-scenes tensions between his top players at a disastrous World Cup – had been in doubt since he chose to directly challenge the FA in a controversial Italian TV interview on Sunday, in which he said he "absolutely" disagreed with the dismissal of Terry before his case had come to trial. But few had expected Capello to go so quickly.

England's plans for the European Championships, to be held in Poland and Ukraine, are now in disarray, with no manager or captain and a likely clear-out of some backroom staff, most of whom came with Capello from Italy, to follow.

Capello stepped down following a meeting at Wembley with the FA chairman David Bernstein and general secretary Alex Horne.

With only four months left to run on his £6m-a-year contract, Capello had little to lose financially by walking away now. Yet having already dismissed Terry as captain once before – following his affair with a teammate's ex-girlfriend – there was surprise that he was prepared to resign over Terry's fate so close to the Euro 2012 finals.

Wayne Rooney, arguably England's most influential footballer, was among several players to voice their disappointment at the news. "Gutted Capello has quit," he wrote on Twitter. "Good guy and top coach." He added that he believed the replacement should be English and backed Tottenham Hotpsur manager Harry Redknapp – now the clear favourite for the appointment – to take the role. The FA will announce tomorrow whether the England Under-21 manager Stuart Pearce or their director of development Sir Trevor Brooking will serve as interim coach.