Lokman Singh Karki has headed the Commission for the Investigation of Abuse of Authority (CIAA) since 2013 and was a controversial appointment from the start because he had himself been the subject of corruption inquiries, although he has never been convicted.
He was suspended late yesterday pending a discussion in parliament on an impeachment motion against him scheduled for Sunday, parliament spokesman Bharat Gautam told AFP.
Bhanu Bhakta Dhakal, chief whip for the opposition CPN-UML who supported the motion, said that Karki had used his position to target his personal foes.
The parliamentary motion states that Karki "seriously violated the constitution and laws and has not sincerely performed the duties of his position".
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It alleges that he used his role in the CIAA to put pressure on the national medical council to help a private medical college owned by his relatives.
The commission denied those allegations in June.
It also accuses him of obstructing proceedings in the Supreme Court on a writ filed against his appointment.
Corruption is rife in Nepal, ranked 130th out of 168 countries in watchdog Transparency International's global corruption perception index.
Some date back to his time as chief secretary to Nepal's former king Gyanendra before he was toppled in 2008.
He became controversial at that time for his role in suppressing the anti-monarchy protests that ultimately led to the abolition of the monarchy.