Salisbury-based Saunders, pictured, stood down at Petersfield Town to take the helm at the EVO-STIK League Southern Division One South & West club after Masters stood down on Thursday.
Saunders spent four years at Petersfield Town, achieving back-to-back promotions from Wessex Division 1 through the Wessex Premier League to the EVO-STIK League Southern's Central Division.
The serving Army warrant officer has managed several Army representative sides and last season guided his old club to a creditable mid-table finish as well as several good cup runs.
Saunders, who has taken his assistant-manager Jason Hampson with him to City, takes charge for the first time on Saturday when Winchester host Godalming Town before they kick off the new season at Slimbridge seven days later on Saturday 6 August.
In a statement on their website, the Citizens paid tribute to Masters and thanked him for his work at The City Ground.
A spokesman said: "We would like to place on record our thanks for the magnificent job that Paul has done over the course of the past two seasons. He worked tirelessly to move the Club forward, and we will remain indebted to him, and wish him well."
Images courtesy of www.winchestercityfc.co.uk
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