Bulgaria have taken just four points from their four Group H fixtures so far, but their 1-1 home draw with Malta last Sunday saw the gap to third-placed Norway widen to five points.
And that proved to be the final straw for the Bulgarian Football Union (BFU), who opted to dispense of Penev's services on Thursday.
In a statement, BFU president Borislav Mihaylov said: "I'm sorry I have to part with Luboslav.
"I'm angry because he did many good things at the head of the national team, but now there are no results and my colleagues in the Executive Committee shared the view that it cannot continue.
"Penev is not the only culprit, a lot of players have failed him."
Former CSKA Sofia and Litex Lovech boss Penev took the Bulgaria job in October 2011, and only signed a two-year extension to his deal last November.