The ruling Union Solidarity and Development Party (USDP) has been gripped by in-fighting in the run up to the November polls - billed as the freest and fairest for decades in the former-junta ruled nation.
After a night of high political drama which saw security forces enter the USDP base in Naypyidaw, Shwe Mann - who is also the parliamentary speaker - appeared to be the main target of a swift and decisive power play.
Thein Sein agreed to Shwe Mann's removal from his party role, Zaw Htay of the President's Office told AFP.
"This is just a party leadership affair, there is no reason to worry," he said, countering rumours Shwe Mann had been arrested.
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The government was working "to stabilise public order," he added, without giving details.
Earlier, Shwe Mann's son told AFP his father's house in the capital had been surrounded by "so-called guards", following the police swoop late yesterday.
About half a dozen police remained at the gate of the party's vast headquarters.
The surprise move comes a day before the deadline for candidates to register to contest the upcoming polls.
There were also signs that Shwe Mann was reluctant to support candidates loyal to the president and had not accepted some recently retired soldiers put forward by the powerful army.
Political tensions are seething ahead of the November 8 polls.
Shwe Mann had publicly welcomed the idea of working closely with Suu Kyi, whose party is expected to make strong gains at the looming polls.