A statement by the club that has won the competition a record eight times said El Badry had resigned and his post would be filled by another Ahly coach, Ahmad Ayoub.
"The football committee, chaired by (club president) Mahmoud al Khatib has accepted Hossam el Badry's apology for not pursuing his mission and has assigned Ahmad Ayoub to lead the team.
"The club will hold a meeting Wednesday to discuss the team's future plans."
Former Ahly defender El Badry was in his third spell as coach of the 'Red Devils' and led them to the 2012 Champions League title.
Ibrahim Saddam put the east African side ahead after 74 minutes in Namboole near Kampala.
Timothy Awany clinched a famous victory for the Ugandan outfit in the second Group A matchday when he converted a penalty one minute from time.
Ahly have won a record 19 CAF titles while City Authority reached the group phase of the elite African club competition for the first time this season.
Defeat leaves Ahly with just one point after two rounds having been held 0-0 at home by Esperance of Tunisia.