The astonishing video shows cars swerve around the CityFibre contractor as he stands with his upper half exposed.
Edinburgh Council said they had not been notified about the work, safety was so poor the man could have been killed, and they were demanding an explanation from the firm.
CityFibre said they were suspending all work by the contractors while an investigation is carried out.
In the video, a Nissan Micra can be seen swerving to avoid hitting the man as he rises from the manhole.
The dashcam vehicle is also forced to swerve out to avoid the man, who at this point has turned his back to the traffic - and is not even wearing a hard hat.
Two traffic cones are perched on the edge of the manhole as the only warning to drivers.
The clip was filmed on a busy 30mph main road in the Craiglockhart area of the city last Monday.
Two traffic cones are perched right on the edge of the hole and appear to be there as much as a barrier as a warning to drivers.
A CityFibre spokesman said: “After an initial investigation, we can confirm that the construction worker shown in the video footage was working for KNNS, a CityFibre contractor.
“We have now invoked an immediate stop to all KNNS works conducted on behalf of CityFibre until the incident is fully investigated alongside KNNS management.
“CityFibre takes its commitment to the health and safety of its staff, contractors and members of the public extremely seriously.”
Councillor Lesley Hinds, Transport Convener for the City of Edinburgh Council, said: “We have written to CityFibre condemning this case in the strongest terms and requesting that they immediately carry out a full investigation.
“CityFibre have suspended all works being carried out in Edinburgh by the contractor shown in the video while this investigation is carried out.
“This is a very alarming case and the Council had not been notified about these works on the road.
“As can be seen on the footage, this was maintenance work being undertaken in a dangerous manner both for the operative and for the public travelling on the road.
“There was no proper traffic management in place and the operative was clearly at very real risk of being seriously injured or even killed.”
KNNS declined to comment.
A spokeswoman for Scotland’s Worst Drivers, who obtained the footage, said: “This workman is extremly lucky to be alive today. Why did he think that two single cones would be enough protection for him?”
Just last week, a workman had his arm amputated after being hit by a car and knocked down a manhole he was working on in Hemel Hempstead, Hertfordshire.
Back in 2013, a 37-year-old engineer died when he was hit by a car as he worked in a manhole in Glasgow.