The decision has been made after a panel found him guilty of a 'high level breach' of the players' code of conduct and has upheld the decision to sack him.
Israel posted on his Instagram account in April that read: "Drunks, homosexuals, adulterers, liars, fornicators, thieves, atheists and idolators - Hell awaits you."
He escaped punishment for similar comments last year.
The chief executive of Rugby Australia, Raelene Castle said "they had no other option".
In a statement from Israel Folau he said: "It has been a privilege and an honour to represent Australia and my home state of New South Wales, playing the game I love.
"I am deeply saddened by today's decision to terminate my employment and I am considering my options.
"As Australians, we are born with certain rights, including the right to freedom of religion and the right to freedom of expression.
"The Christian faith has always been a part of my life and I believe it is my duty as a Christian to share God's word.
"Upholding my religious beliefs should not prevent my ability to work or play for my club and country.
"I would like to thank my wife Maria for her love and encouragement to stay true to our beliefs.
"We have been jumbled by the support we have received from family, friends, players, fans and the wider community.
"Thank you also to those who have spoken out in my defence, some of whom do not share my beliefs but have defended my right to express them."
Folau's been given 72 hours to confirm whether he wishes to appeal.
According to Christian PR and social media adviser David Taylor, his sacking should make Christians wary about their own jobs.
Speaking on Premier's News Hour about social media policies introduced by companies, he said: "These are very loosely worded documents that put a lot of power into the hands of their employers.
"They're not just saying 'please don't defame us as an employer', they are documents that want to control the way we behave outside of the workplace."
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