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Paul Godfrey takes questions from the media after he was dismissed from his post as Ontario Lottery and Gaming Corp. chairman, in Toronto on May 16, 2013.Michelle Siu/The Globe and Mail

Paul Godfrey has been ousted as chairman of Ontario's lottery corporation, leaving his vision for a downtown Toronto casino in tatters and plans to overhaul the province's gambling operations in disarray.

The entire board of directors at the Ontario Lottery and Gaming Corp. resigned in protest Thursday evening, with six of them penning a letter to the Finance Minister saying they are shocked by Mr. Godfrey's dismissal.

The directors also warned that the government's actions could jeopardize the modernization of the OLG, which had promised to raise an additional $1.3-billion annually for the province by building more casinos and privatizing lottery operations.

While the strategy was endorsed by the previous Liberal government under Dalton McGuinty, Premier Kathleen Wynne has clashed with Mr. Godfrey, charting a decidedly different course from her predecessor.

Ms. Wynne, who is no fan of a Toronto casino, has raised concerns about several key OLG decisions. She ordered the Crown agency to nix plans to cut the city a special funding deal if council voted in favour of a casino and this week resurrected a panel of former cabinet ministers to integrate horse racing with Ontario's gambling policies.

"I believe there was a chemistry difference between us, and that's fair," Mr. Godfrey said at a news conference Thursday evening.

"I can totally understand why she would want someone she's more comfortable with. I didn't accept that there is a different direction, because I don't think this government can afford to go in a different direction."

But a defiant Mr. Godfrey said the government signed off on both decisions that landed him in hot water with Ms. Wynne.

The special hosting fee for a Toronto casino was approved by former finance minister Dwight Duncan, he said. And he added that controversial pay hikes for OLG executives went to cabinet.

"We as a board were always very careful to secure all proper approvals – not just from the bureaucracy, but at the political level."

A prominent Progressive Conservative and CEO of newspaper chain Postmedia Network Inc., Mr. Godfrey was hand-picked by Mr. Duncan in 2010 to overhaul the Crown agency and generate more revenue for the province.

But it became evident in recent weeks that Mr. Godfrey would be pushed out before his five-year term was to expire in February, 2015.

He acknowledged that he knew his days were numbered at the OLG when Finance Minister Charles Sousa dressed him down two weeks ago for the salary hikes and publicly called the increases "unacceptable."

The Globe and Mail reported on Monday that the government has compiled a shortlist of candidates to succeed Mr. Godfrey. That same day, Mr. Sousa tried to schedule a meeting with Mr. Godfrey, but the OLG chairman was unavailable, according to a government source.

On Wednesday, Mr. Godfrey got a call from Mr. Sousa, summoning him to a meeting the following day, according to a source close to the chairman.

During a 45-minute meeting at Mr. Sousa's Queen's Park office, the minister gave Mr. Godfrey the option of resigning, the government source said. But Mr. Godfrey declined and was told he would be replaced, the source added.

On Thursday it also emerged that Toronto would receive only $53.7-million in hosting fees, virtually guaranteeing the demise of the downtown gambling resort.

Mr. Godfrey said Mr. Sousa told him the planned modernization of the gambling agency would go ahead. However, that's not what Mr. Godfrey heard from Ms. Wynne. When he asked the Premier why he was being forced out, he said she told him the government wanted to move the agency in an unspecified "new direction."

"I haven't been given any reason for [my firing], nor do I think there is a particularly good one," he said.

Six of his colleagues on the board rallied to his defence. In a strongly worded letter to Mr. Sousa, they said they were troubled by recent comments in the media that had "cast a shadow over the progress" the OLG had made since 2010.

They contended their decisions, including cancelling the slots-at-racetrack program, offering Toronto a higher casino hosting fee, and financial incentives for executives, were approved by cabinet or government.

"We have kept the government informed at all times and have only acted when provided all appropriate approvals … ," states a copy of the letter obtained by The Globe. "Any suggestion to the contrary would be false."

For his part, Mr. Sousa thanked Mr. Godfrey for his "significant" accomplishments.

"Under his leadership, OLG re-invented itself and became a modern and more efficient organization," he said in a statement.

Peter Wallace, secretary of the cabinet, has been appointed interim chairman of the OLG.

This is the latest upheaval at the OLG. The McGuinty government dismissed the agency's chief executive officer, Kelly McDougald, in August, 2009, after revelations OLG employees billed taxpayers for everything from pen refills to gym memberships. At the same time, the corporation's entire board of directors resigned.

In 2006, the OLG was ensnarled in an insider-win scandal, with more than 200 ticket sellers alleged to have landed jackpots worth more than $50,000 in seven years. CEO Duncan Brown stepped down in March, 2007, just before the ombudsman scolded the OLG for paying out millions of dollars in suspect claims, contending the Crown agency "turned a blind eye" to theft and fraud by retailers.

With a report by Adam Radwanski