Kiley, London mayor Ken Livingstone's chief transport adviser, had been appointed by prime minister Tony Blair before the election to break the PPP deadlock and to mute criticism of the government's plans. The decision to sack him signals the failure of this strategy.
A spokeswoman for Tubelines said Kiley's dismissal would clear the way for deals to be closed, possibly "within 12 weeks if everything runs smoothly". She said: "We were willing to make compromises but there was no way to reach an agreement. I think this will speed up negotiations."
A spokesman for the Metronet consortium said Kiley had stalled negotiations. He said: "The last few months when we have been talking to Mr Kiley, things have really stood still."
Kiley's dismissal came just before the former New York subway chief was to present two reports to the LT board, both critical of PPP-style contracts on grounds of safety and financial prudence.
Kiley said his dismissal was an attempt by the government to cover up safety issues.
He said he would continue to raise these concerns and would wear his dismissal as a "badge of honour".