"Mr President has directed that Nigeria will withdraw from all international football competition for the next two years to enable Nigeria to reorganise its football," Ima Niboro, Jonathan's senior communications adviser, told reporters.
"This directive became necessary following Nigeria's poor performance in the ongoing FIFA World Cup," he said.
Nigeria were knocked out in the first round.
After meeting the country's World Cup organising committee, Jonathan also said the accounts of the committee should be audited.
"If any financial misappropriation is discovered, all officials responsible will be held accountable," Niboro said.
Jonathan's decision came a day after the executive committee of the Nigerian Football Federation (NFF) met to review the team's first round exit, in which they picked up a single point and finished bottom of their group also containing South Korea, Greece and Argentina.
Niboro said the sports minister would be writing to FIFA shortly to inform them of the decision. He said the minister for the federal capital territory, Abuja, had been instructed to build a "Football House" where the team could be based.
"The problem of Nigerian football is structural. We need to reorganise the structures and there is need to withdraw from all international football competition so that we can put our house in order," Niboro said.
FRIENDLY MATCHES
A statement said the federation apologised to the "federal government and all football-loving Nigerians for the early ouster of the Super Eagles from the World Cup" and added Nigeria would seek to play more friendly matches to get more experience.
"It's the right decision ... President Jonathan has made a bold step to clean up the rot. We need to move the country in football," John Fashanu, a former England footballer partly of Nigerian descent, told local sports radio.
"We cannot be held to ransom by anybody."
Some Super Eagles fans were shocked by the decision.
"Sounds to me like the president is trying to score cheap political points ... the next major international competition is two years away anyway," said one irate fan in Lagos, asking not to be named.
WIDE-RANGING PROGRAMME
The NFF said it wanted Swedish coach Lars Lagerback, appointed on the eve of the finals, to stay and put together a wide-ranging programme to harness young talent.
The statement also said the federation disagreed with those claiming Nigerian football was in a dwindling state.
"No previous board has qualified Nigeria for all major tournaments internationally," the statement said.
The government instruction to withdraw could prompt sanctions from FIFA, who have taken a strong stand against political interference in the sport.
A FIFA spokesman said: "We have had no offi
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