Danon had criticized a decision by Israel's security cabinet to accept an Egyptian proposal for a ceasefire between Israel and Palestinian resistance factions in the Gaza Strip.
"At a time when the Government of Israel and the IDF are in the midst of a military campaign against the terrorist organizations and is taking determined action to maintain the security of Israel's citizens, it cannot be that the Deputy Defense Minister will sharply attack the leadership of the country regarding the campaign," Netanyahu said.
"In light of his remarks, which express a lack of confidence in the government and in the prime minister personally, it was expected that the Deputy Defense Minister would take responsibility for his actions and resign," he said.
"Since he has not done so, I have decided…to dismiss him from his post," Netanyahu said.
Egypt had earlier proposed a ceasefire between Gaza-based resistance factions and Israel, to come into effect at 6am GMT on Tuesday.
While Israel's security cabinet accepted the proposal, deputy Hamas leader Moussa Abu Marzouq said his group was still mulling the initiative after having initially rejected it.
Cairo's initiative calls on Israel to cease all hostilities in the Gaza Strip, halt all ground operations and refrain from targeting civilians, according to an Egyptian Foreign Ministry statement.
It also calls on Palestinian resistance factions to cease hostilities against Israel, halt rocket fire and cross-border attacks and stop targeting civilians.
The overture further calls for reopening Gaza's closed border crossings and facilitating the movement of persons and goods in and out of the embattled coastal strip.
Israeli Prime Minister Benjamin Netanyahu said earlier Tuesday that Israel will expand its military operation in the Gaza Strip.
