The ouster of MacKenzie, who as editor of The Sun from 1981 to 1994 ran some of its most memorable front pages, comes at a time when Murdoch's U.S. TV business is struggling to contain a sexual harassment scandal at Fox News.
The Sun had suspended MacKenzie as a columnist last month after he likened football player Ross Barkley of the Liverpool-based club Everton, who has a Nigerian grandfather, to a gorilla at the zoo. MacKenzie denied that was racist.
The Sun withdrew the column, which its publisher News UK called "wrong, unfunny and not the view of the newspaper".
Citing unnamed sources with knowledge of the discussions, the Financial Times said The Sun was negotiating exit terms with MacKenzie.
It presented his ouster as part of a clear-out of Murdoch's old guard and linked it to the possible impact of the Fox News scandal in Britain, where its parent company Twenty First Century Fox is bidding to take full control of pay-TV group Sky.
British regulators examining whether Fox would be a fit and proper owner of Sky have met one of the women who have made harassment claims against ousted Fox News star presenter Bill O'Reilly.
MacKenzie did not answer several phone calls from Reuters to his mobile number. A spokesman for The Sun said he remained suspended and declined further comment.
The reputation of Murdoch's British newspaper business has been damaged in recent years by a huge scandal over phone-hacking by some reporters. It led Murdoch to close The Sun's sister Sunday newspaper, The News of the World, in 2011.
MacKenzie's column insulting Barkley also suggested that the only people in Liverpool who could earn as much as football stars were drug dealers.
This was particularly incendiary given MacKenzie was in charge of The Sun when its coverage of the 1989 Hillsborough stadium disaster, which killed 96 Liverpool football fans, caused revulsion in the city which endures to this day.
The Sun carried false police claims that drunken Liverpool fans had caused the disaster and pick-pocketed the dead, under the headline "THE TRUTH".
MacKenzie's departure would mark the end of an era for the irreverent tabloid, which during his editorship sold over 3.5 million copies a day and is now down to 1.6 million.
As editor, he was responsible for The Sun reporting the sinking of the Argentine warship General Belgrano during the Falklands War in 1982 under the banner headline "GOTCHA". More than 300 lives were lost in the sinking.
MacKenzie also signed off on "UP YOURS DELORS", a 1990 headline attacking the then president of the European Commission, Jacques Delors.
He was also at the helm when The Sun claimed credit for Conservative Prime Minister John Major's surprise victory in the 1992 election by stating "IT'S THE SUN WOT WON IT".
(Reporting by Paul Sandle and Estelle Shirbon; editing by Stephen Addison)
