Italy’s 1-0 defeat to Uruguay in Natal meant they missed out on progression to the knockout stages from Group D.
Prandelli announced at his post-match press conference: “I talked to the president of the federation.. and gave my resignation.
“The technical set-up didn’t work, and I take all responsibility for that.
“Something has changed since my contract was renewed. I don’t know why. I chose a certain technical plan and that’s why I’m resigning – because it did not work.”
Prandelli, the former Roma and Fiorentina coach, replaced Marcello Lippi as national team manager in the wake of the 2010 World Cup.
He steered Italy to the final of Euro 2012 where he was widely praised for his coaching methods despite an eventual 4-0 final defeat to Spain.
Italy made a strong start to the 2014 World Cup with victory over England but were left with all to play for in their final group game after an unexpected loss to Costa Rica.
Despite a solid defensive performance last night, Italy were put under increasingly pressure following the sending-off of Claudio Marchisio.
Prandelli added: “A second European Championship, third at the Confederations Cup and the qualification obtained in advance should not be under-estimated.
“The match was well-balanced in equal numbers, but the sending-off changed it all.”
Prandelli was not the only man to fall on his sword with president Giancarlo Abete also stepping down.
He said he would recommend that Prandelli changes his mind, but that he himself was going.
“I will go to the board and offer my irrevocable resignation too. I had already made this decision before the World Cup,” he said.