The dismissal came just seven months after Walters took the job on a permanent basis. In June the city council voted 5-0 to hire Walters for three years after he took over interim duties after the former manager retired.
Some political observers believe Walters was pushed out as part of a council majority campaign to undercut longtime Mayor Miguel Pulido's influence over city bureaucracy. Pulido is serving his sixth term as mayor. The mayor's vote was the only one against the firing.
Walters is also the city police commissioner. Walters is a former chief of the Santa Ana Police Department.
His firing could cost the city more than $200,000 in salary and unused leave time.
City News Service contributed to this report.