Ann Godoff, the president of Random House Trade Group, who edited Midnight in the Garden of Good and Evil, by John Berendt, and The God of Small Things by Arundhati Roy and was responsible for buying Zadie Smith's White Teeth, and The Alienist by Caleb Carr, was fired on Thursday.
Peter Olson, the chief executive of the parent company, Random House, a division of Bertelsmann and the largest book publisher in the world, told Ms Godoff that her group had "consistently [fallen] short of their profitability targets".
She had 12 books on the hardback bestseller lists last year but her group made a profit of only $2m (£1.2m) - one third of the target set by Mr Olson.
The move has sparked protests from leading authors and fuelled fears of those who believe literary fiction has lost the battle against commercial thrillers.
Berendt, whose book was one of Random House's best ever sellers, said he was seriously considering looking for another publisher.
He told the New York Times that authors and editors built up "very strong relationships which create a feeling of trust. So I kind of feel that I've been fired too".
Michael Pollan, the author of The Botany of Desire, told the Washington Post he was devastated by Ms Godoff's departure. "I can't imagine writing a book without her. She's a brilliant editor."
Book sales generally had started to slump following the September 11 terrorist attacks. But then Black House, a joint production by Stephen King and Peter Straub for which she had paid a hefty advance, lost millions of dollars.
But her sacking came as a complete shock, particularly as her contract had been renewed last summer, effective from the beginning of this year. She had hoped that a new paperback line, launched last year, would contribute to greater profits.
"I would have liked to have had more time to have developed this list because it would have been precisely the profitable enterprise that Peter Olson and I both conceived when we sat down and talked about it," she said at the weekend.