Batho, whose ministry's budget was cut by seven per cent, is the first minister in the Socialist government to be axed for criticising policy. She is being replaced by Socialist lawmaker Philippe Martin.
The 40-year-old was earlier summoned by Prime Minister Jean-Marc Ayrault. French ministers are traditionally not supposed to criticise policy decisions publicly even if they are personally opposed to them.
However, the outspoken Minister for Industrial Renewal, Arnaud Montebourg, has not been dropped despite criticising his peers several times and even questioning economic policy.
French government spending is set to fall next year for the first time since 1958 owing to a slew of austerity measures.
Ministries are expected to achieve a cut of about 1.5 billion euros (USD 2.0 billion) in central government spending in 2014 from this year's level.
France aims to cut the budget deficit to 3.9 per cent of gross domestic product this year, then 3.6 per cent in 2014 and 2.8 per cent in 2015.