Morganella had directed an offensive jibe at South Korea's players after Switzerland's 2-1 defeat to the Asian giants on Sunday.
"Michel Morganella has discriminated against, insulted and violated the dignity of the South Korean football team, as well as the South Korean people," said Switzerland Olympic team chef de mission Gian Gilli.
"While the committee felt that Michel had been provoked on his Twitter account and that he has publicly apologised, the Swiss Olympic Committee and Swiss Football Association condemn Morganella's actions to the fullest."
In a post on Twitter that was later deleted, Morganella wrote: "I am going to batter the Koreans, burn them all … bunch of 'trisos'." 'Trisos' is a French slang word for people born with Down's Syndrome.
Morganella, a 23-year-old defender who plays his club football in Italy with Palermo, made the remarks after Switzerland's defeat to Korea. Morganella's early departure from the Olympics makes him the second athlete to pay the price for a Twitter-related offence.
Greek triple jumper Voula Papachristou was kicked out of the Olympics last week for a racist comment on the micro-blogging site which poked fun at Africans living in the country.
The 23-year-old Papachristou had written that "with so many Africans in Greece, at least the mosquitoes of West Nile will eat homemade food".
Although she subsequently deleted the message after a huge public backlash, the Hellenic Olympic Committee decided to drop her from the squad for London.
Before the games, Australian swimmers Nick D'Arcy and Kenrick Monk were hit with a one-month social media ban by their country's delegation after posting photos of themselves posing with guns while training in the United States.
The pair will be sent home right after their events at the Games, with the Australian Olympic Committee ruling "their conduct brought themselves into disrepute". – AFP