The decision came moments after lawmakers voted the cabinet's work unsatisfactory.
Earlier, President Petro Poroshenko had asked Mr Yatsenyuk to resign, saying that he had lost the support of the coalition.
Mr Yatsenyuk's government has been criticised over the economy and faces allegations of corruption.
Some 194 out of 339 MPs voted in support of the no-confidence motion - at least 226 votes were needed for it to be passed.
In a speech earlier during a report that reviewed the government's performance in 2015, the prime minister said his cabinet had done all it could under difficult circumstances.
Mr Yatsenyuk came to power in 2014, after the massive protests that removed former pro-Russia President Viktor Yanukovych.
Mr Yatsenyuk promised to tackle corruption and implement economic reforms in the former Soviet state, but has become the focus of accusations of corruption, even though no concrete evidence has emerged.
BBC
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