Trump explained his bombshell announcement by citing Comey's handling of the investigation by America's leading law enforcement agency into Democratic presidential nominee Hillary Clinton's use of a private email server when she was the secretary of state.
Comey, 56, who was four years into his 10-year term as FBI director, was informed by Trump that he was no longer effectively able to lead the bureau and it was necessary to restore "public trust and confidence" in it.
The President's move comes days after Comey testified on Capitol Hill about the FBI's investigation into Russia's meddling into the US elections and a possible collusion between Trump campaign and Moscow.
In recent days, Comey again came under fire for his handling of the investigation into Clinton's private email server. Many Democrats believe that his announcement that he was re-opening the probe 11 days before the November 8 election cost Clinton the presidency.
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Comey's deputy, Andrew G. McCabe, a career FBI officer, has been appointed the acting director, the Justice Department said. The White House said the search for a director will begin immediately.
Press Secretary Sean Spicer told reporters: "The president has accepted the recommendation of the Attorney General (Jeff Sessions) and the Deputy Attorney General (Rod Rosenstein) regarding the dismissal."
In a statement released by the White House, Trump said: "The FBI is one of our nation's most cherished and respected institutions and today will mark a new beginning for our crown jewel of law enforcement."
Deputy Attorney General Rod Rosenstein, in his letter to Trump, criticised Comey's handling of the Clinton probe, including the director's decision to hold a press conference announcing its findings and releasing "derogatory information" about her.
In a separate letter, Sessions said he has concluded that a fresh start is needed at the leadership of the FBI, based on his evaluation as well the reasons expressed by the Deputy Attorney General.
It was not immediately clear how Comey's ouster will affect the Russia probe, but Democrats said they were concerned that his ouster could derail the investigation.
"I told the president, 'Mr President, with all due respect you are making a big mistake,'" Chuck Schumer, the top Democrat in the Senate, told reporters.
The Senate Minority Leader demanded that the Department of Justice appoint a special prosecutor to investigate Russia's alleged influence on the 2016 elections.
Schumer also questioned the timing of the decision.
"If the administration had objections to the way Director Comey handled the Clinton investigation, they had those objections the minute the president got into office. But they didn't fire him then. Why did it happen today?" he asked.
House Democratic Caucus Chairman Joe Crowley said Comey's dismissal is extremely troubling.
"President Trump fired the man investigating him and his cohorts. I strongly support calls for the appointment of a special prosecutor," he said.
Republican Senator John McCain, the Chairman of Armed Services Committee, said he was disappointed by Trump's decision to dismiss Comey.
"James Comey is a man of honour and integrity, and he has led the FBI well in extraordinary circumstances. I have long called for a special congressional committee to investigate Russia's interference in the 2016 election," he said.
"The president's decision to remove the FBI Director only confirms the need and the urgency of such a committee," McCain said.
Though the president has the authority to fire the FBI director for any reason, Comey is only the second director to be fired in bureau history. President Bill Clinton fired William S. Sessions in 1993.
"Trump had already fired his acting attorney general for insubordination and his national security adviser for lying to Vice President Mike Pence about contacts with Russians. But firing Comey raises much deeper questions about the independence of the FBI and the future of its investigations under Trump", the leading newspaper commented.
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