"It is with the greatest regret and reluctance that the government has decided to close Ireland`s (embassy) to the Holy See," said a statement from the foreign ministry.
Foreign Minister Eamon Gilmore said the move was not connected to the row with the Vatican which was sparked by a July report into a long-running abuse scandal in the diocese of Cloyne, insisting it was aimed at saving money.
"I very much regret that due to the financial constraints that this country is under at the moment that we have to reduce the number of missions that we have abroad, including the mission that we have at the Vatican," he told RTE state radio.
The foreign ministry added in a statement that "the government believes that Ireland`s interests with the Holy See can be sufficiently represented by a non-resident ambassador."
The ministry also announced the closure of the embassy in Iran and a representative office in East Timor as part of the overhaul, which it also insisted were aimed at saving money in the wake of the financial crisis.
Predominantly Catholic Ireland has traditionally had close links with the Vatican and the embassy was opened in 1929 but Dublin and the Holy See fell out dramatically earlier this year.
The July report into more than a decade of abuse by priests in the diocese of Cloyne condemned the Church`s handling of abuse claims against clerics as inadequate.
The report sparked outrage in the Irish government and triggered an unprecedented attack by Prime Minister Enda Kenny who called the Roman Catholic Church`s behaviour "absolutely disgraceful".
The Vatican subsequently recalled its envoy to Ireland in order to formulate an official response.
The decision to close the missions followed a 2009 report on public expenditure savings choices for the government which said Ireland had 76 embassies and consulates compared to 40 in 1989.
The report recommended reducing the number of embassies and consulates to 55.
Thursday`s foreign ministry statement insisted the closures were aimed at saving money and made no mention of the child sex abuse row.
"In order to meet its targets under the EU/IMF programme and to restore public expenditure to sustainable levels, the government has been obliged to implement cuts across a wide range of public services," it said.
"No area of government expenditure can be immune from the need to implement savings."
Dublin was forced to turn to the European Union and International Monetary Fund in November last year to seek an 85-billion-euro rescue package following a financial crisis.
Ireland has had an embassy in Tehran since 1976 but trade volumes with Iran had fallen short of expectations, said the statement.
The Irish mission in East Timor had been in place since 2000, two years before independence, said the ministry. (*)