He has been under pressure to deal with the scandal following a report by a body overseeing public finances.
The inspector of the government's accounts noted the rampant misuse of funds in at least seven ministries.
The ministers who have been dropped from cabinet all hold high-profile portfolios: Finance, energy, tourism, trade, transport and health.
'Taken to task'
In November, the ruling CCM party promised to implement anti-corruption measures, but there have been heated calls from the opposition for heads to roll.
Announcing the cabinet reshuffle, President Kikwete said that accountability would be taken seriously and ministers' subordinates and even executives working for state-owned companies would also be held responsible over any embezzlement.
"It is not enough for a minister to take responsibility alone but the new approach is that even those who caused the mishap will be taken to task as well," Mr Kikwete told journalists at State House in Dar es Salaam.
The BBC's Hassan Mhelela in Dar es Salaam says the ministry of energy, which oversees the lucrative mining sector, and ministry of tourism - two of the major revenue generators for the government, were criticised most in the Controller and Auditor General's annual report.
There have been mixed reactions to the sackings, our reporter says.
Many are pleased that the government has acted at last but some feel there should be prosecutions too, he says.
Mr Kikwete was re-elected in 2010 for a final five-year term.
His government has struggled to tackle corruption which has adversely hampered economic growth in Tanzania where the rate of inflation rate stands at 19%.
Last year, donor countries cut funding pledges to Tanzania after expressing concern about corruption and the slow pace of reforms.