Referee Ravshan Irmatov of Uzbekistan blew his whistle to award Italy a penalty.
A second later, as play continued, Giorgio Chiellini scored.
Irmatov was seen pointing at the penalty spot but then giving a goal.
“He has admitted he made a mistake,” said FIFA spokesman, Pekka Odriozola.
Irmatov, a widely respected referee, had been expected to have a chance to referee the Confederations Cup final next Sunday but is now expected to be sent home along with his assistants, who also made two key errors in Saturday’s game.
Brazil won the match 4-2.
Chiellini’s goal brought the score to 3-2 for Brazil.
Odriozola said Irmatov had not made any excuses about his mistake, but had explained it by saying: “While I was whistling for a penalty, out of the corner of my eye I saw the goal and I thought advantage should be played and gave the goal.”
In prestigious tournaments, refereeing teams rarely get the chance to make more than one major mistake.
At the 2006 World Cup in Germany, English referee, Graham Poll, was sent home after showing three yellow cards to a Croatian defender, while compatriot Howard Webb was sent home when one of his assistants made an error at the European Championships in 2008.
Webb recovered to referee the 2010 World Cup final in South Africa.
Irmatov, having blown for a penalty, stopped play and should only have restarted it with a penalty.
Allowing play to continue, even for half a second or so, was a “technical error,” Odriozola said.
If the referee had waited for a moment, the delay would have allowed him to let play develop and give the goal by playing an advantage.
Instead, he blew for the penalty but then gave the goal, enraging Brazil’s players.
The mistake was compounded by each assistant, Abduxamidullo Rasulov from Uzbekistan and Bakhadyr Kochikarov of Kyrgyzstan, failing to signal offside for two Brazilian goals.
Both mistakes were close, but should have been spotted.
For some match officials, the mistakes raise the question of whether referees and assistants who officiate in less competitive leagues – like those in countries like Uzbekistan and Kyrgyzstan – should be appointed to such high octane matches.