McCarthy: Stepping down (RossKinnaird/GettyImages)

The man who led the Irish to the second round of this year's World Cup has agreed a compensation package with the Football Association of Ireland (FAI) after a meeting this afternoon.

'He has taken the decision 'in the best interests of the Irish team,' said a statement on the FAI's website.

'McCarthy came to the decision as a result of... discussions with FAI officials and his advisers following Ireland's defeat by Switzerland in the 2004 European championship qualifier at three weeks ago.

'Since that 2-1 defeat the manager had been considering his position as manager.'

McCarthy has been under increasing pressure ever since the end of the World Cup finals in the summer, despite leading the team into the second round, where they lost on penalties to Spain.

That was achieved without the Republic's influential captain Roy Keane, who was sent home from the squad's pre-tournament training base in Saipan following a highly-publicised row with McCarthy.

The team have since lost both their opening Euro 2004 qualifying campaign matches - away to Russia and at home to Switzerland - and it is believed McCarthy felt the time was right to leave the job he held since succeeding Jack Charlton six years ago.

The FAI had wanted McCarthy to remain in the post, but agreed to his request for an amicable parting.

The Republic have a friendly against Greece in a fortnight, and Under-21 boss Don Givens is set to be named as caretaker-manager for that match.

The FAI will then set about finding a replacement for McCarthy and will hope to have one installed before their next Euro 2004 qualifier, away to
Georgia at the end of March.

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Former Leeds manager David O'Leary has already said he will not put himself forward for the job, but the shortlist of successors will include John Toshack, John Aldridge and Joe Kinnear.

Only last week McCarthy insisted he was not about to quit, although he was not prepared to speculate on whether he would be in charge when Ireland face Georgia in their next European Championship qualifier on March 29.

The former Millwall manager had been expected to talk to FAI chiefs last week, but appeared in no hurry.

'I did say I was going to talk to the FAI but it wasn't like I was going to talk to them on Wednesday or Friday,' said McCarthy at the time.

'I will be talking to them but it is not as if I have an immediate plan to go and discuss my future. We have a match against Greece and I have to discuss things to do with that.

'I am not going anywhere to resign. I am here at the minute, I live in the real world. I've got both my feet on the floor and I'm very pragmatic about the way things are going.'

McCarthy came under increasing pressure since the loss to Switzerland and some critics believe the only way the Republic can qualify for Euro 2004 is for McCarthy to be replaced, allowing Keane to return to the side.

McCarthy admitted it was a scenario his critics would welcome.

He added: 'In the end it's not about me. It's not about Roy Keane. It's not about certain individuals. It is about the greater good of the team and the country.'