"The entire senior management team of ArmorGroup North America in Kabul is being replaced immediately. The embassy security office continues its interviews of every one of the ArmorGroup guards."
An embassy spokeswoman also said the guards had been banned from drinking alcohol at any time while in Afghanistan.
The letter from the Project on Government Oversight to Hillary Clinton, the US secretary of state, said the guards' conduct placed diplomats at the embassy compound at risk, at a time when fighters linked to the Taliban and al-Qaeda were mounting a resurgence against US targets.
Rockets landed close to the embassy compound last month, and a suicide bomber killed at least seven people and wounded almost 100 others close to the gates. The Taliban said that the bomber had intended to strike the embassy.
The Project on Government Oversight's letter to Clinton said that the guards had promoted a "Lord of the Flies environment" in which abuses and humiliating rituals were commonplace.
In one case, a drunk supervisor wearing underwear grabbed the face of an Afghan man and insulted him with strong language, the letter said.
ArmorGroup employs 450 guards to provide security at the embassy under a five-year, $189m contract. Wackenhut Services Inc, which is the parent company of ArmorGroup, made no comment on the sackings.