The result left UAE four points behind the Socceroos in Group B of the third round of Asian qualifying, and the team faces an increasingly difficult task to secure a place at next year's finals in Russia.
Ali, 51, had been in charge of UAE's senior side since 2012 and has previously coached four different age groups of the country's youth teams.
"Now is the time for me to leave," he told a post-match news conference in Sydney.
"I resigned before the Iraq game, [but] the federation asked me to stay. After five years, I did my best."
Ali guided UAE to a surprise penalty-shootout victory over Japan in the quarter-finals of the 2015 Asian Cup, before his team bowed out at the hands of hosts and eventual winners Australia in the last four.
Ange Postecoglou came out on top again in their latest clash, the Australia coach cutting a relieved figure as his team's unwanted run of four consecutive draws came to an end at Allianz Stadium.
"[I'm] very proud of the players. It was a challenging 10 days for us," he told Fox Sports, the Socceroos having been held 1-1 by Iraq on neutral territory in Tehran on Thursday.
"Before I left all I heard about was structures and corporate governance and very little [about] football," he added, referring to scrutiny on Football Federation Australia in the wake of FIFA demanding the national governing body undergoes reform.
"We know we could play well at home. The other night we lost the physical battle... we didn't have a chance to set up defensively like we wanted to.
"Physically [Mathew Leckie and Brad Smith] can go with anybody in the world. [Jackson] Irvine was outstanding, [as was James] Troisi... and the defence."