Libya's eastern-based parliament voted to suspend Prime Minister Fathi Bashagha on Tuesday, the body's spokesman Abdullah Belhaiq said.
The country's eastern-based parliament is known as the House of Representatives and operates in Tobruk.
Mr Bashagha has been unable to take office in Tripoli, where incumbent Abdul Hamid Al Dbeibeh has refused to cede power.
He will be replaced by Finance Minister Osama Hamada, in what is being seen as a new push to oust Mr Al Dbeibeh and install a new government in Tripoli.
Mr Bashagha, a former interior minister and air force pilot, was appointed prime minister by the House of Representatives in February last year.
His efforts to enter Tripoli and take office ended in battles between factions aligned with him and those allied with Mr Al Dbeibeh, and he has had to operate outside the capital with no control over state finances.
He wrote to the parliament earlier on Tuesday to say he was handing his duties over to his deputy Ali Qatrani, without saying whether or when he planned to resume them.
A source close to Mr Bashagha told Reuters that he was taking personal leave.
Voting and other activities carried out by parliamentary authorities have sometimes later been challenged by some members of the chamber, who accuse Speaker Aguila Saleh of pushing through policies without the proper procedure.
Mr Saleh has denied doing this.
Libya has had little peace since the 2011 Nato-backed uprising against Muammar Qaddafi, and it split in 2014 between warring eastern and western factions, though major fighting concluded following a ceasefire in 2020.
Mr Dbeibeh's government was installed through a UN-backed process in 2021 that was aimed at holding elections that year, but those elections were cancelled amid disputes over the rules.
Diplomacy is now focused on having the parliament and another legislative body, the High State Council, to agree on rules that would allow elections to take place.
However, senior figures in the parliament have pushed for a new interim government to be formed before any election, a move their opponents see as a delaying tactic that would allow them to hang on to their positions.
By replacing Mr Bashagha, figures who oppose Mr Dbeibeh may also hope they can win enough support from other factions in western Libya to replace him and gain access to state finances.
The High State Council, which never recognised the appointment of Mr Bashagha, called the parliament's move to replace him a “political absurdity” in a statement.
