Italian Fabio Capello's turbulent reign as England manager ended on Wednesday when he resigned after meeting FA chairman David Bernstein and general secretary Alex Horne at Wembley stadium.
Terry, who would have led England at this year's European Championship, denies the charge.
Capello, 65, expressed his unhappiness with the decision in an Italian television interview on Sunday.
"I thought it was right that Terry should keep the captain's armband," he said.
An FA statement said Capello's resignation had been accepted and he would leave his post immediately after just over four years in charge.
"I would like to stress that during today's meeting and throughout his time as England manager, Fabio has conducted himself in an extremely professional manner," Bernstein said in a statement.
"We have accepted Fabio's resignation, agreeing this is the right decision. We would like to thank Fabio for his work with the England team and wish him every success in the future."
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