The National Party caucus today suspended Maurice Williamson, although the MP refused to take part in the discussion about his fate.
Party leader Bill English announced the decision, which was taken on a vote by MPs.
The Pakuranga MP has been punished for criticising Mr English's performance, which he blames for National's poor support in opinion polls.
He repeated his criticism before and during National's annual conference 10 days ago, angering his colleagues who accused him of media grandstanding.
Mr Williamson attended the caucus for only three minutes, telling his colleagues he had not been given details about what was to be discussed and would not take part.
Mr English told reporters it was now up to National's governing board to decide what to do about Mr Williamson.
The board is due to meet on Thursday to consider cancelling his membership.
Mr English told reporters: "The National Party caucus today voted to suspend Maurice Williamson, the MP for Pakuranga, pending hearings by the National Party board."
He said previous efforts had been made to resolve the situation, including offering Mr Williamson promotion in the caucus ranking.
Mr English confirmed that Mr Williamson's actions at the annual conference had been the catalyst for today's decision.
Mr Williamson said he would make no further comment after releasing the brief statement he made to the caucus.
If the party's board cancels Mr Williamson's membership, one of the options he has will be to resign his seat in Parliament and contest a by-election as an independent.
Mr English said today the caucus was not concerned about that.
Mr English said many New Zealanders were worried about the path the Government was following.
"We believe that the concerns of the country are much more important than the views of one person who has been suspended from caucus. We are anxious to get on and talk with the public," he said.
Asked whether he accepted Mr Williamson's view he had not been consulted, Mr English said caucus was master of its own destiny.
"Maurice Williamson had notice of the motion caucus would be discussing and had the opportunity in the caucus to speak to that motion in detail," he said.
"He apparently had taken legal advice to the contrary, but the caucus has followed the process that the caucus was free to determine."
The party would initiate its process on Thursday, he said.
He was sure it would follow all the right legal advice.
Many of the legal issues were sorted out when Winston Peters was expelled from the party in the early 1990s "so it's pretty well-trodden ground".
The suspension means Mr Williamson is out in the cold, unable to take part in any parliamentary business.
He will still be considered a National MP, with his salary and allowance unaffected.
But it will be a lonely life in Parliament if he decides to stay on and fight the suspension through litigation, which appeared to be the most likely course he would follow.
Mr English said the courts could not look into the proceedings of caucus, and the party would run proper hearings in accordance with its constitution.
The suspension would last as long as it took the party's board to complete its deliberation on complaints from party members and the caucus motion.
Mr English was comfortable that the party would be able to resist any legal challenges from Mr Williamson.
He said the courts had ruled in the past that judges could not look into the affairs of a caucus.
Mr English said the caucus vote was by secret ballot.
"But I can say from the discussions that it was unanimous or near-unanimous".
He confirmed the possibility of a by-election in Pakuranga had been discussed by the caucus.
"If there is any possibility of it we will be extremely well-prepared for it," he said.
"It would give us the opportunity to campiagn for three to four weeks in Auckland on issues where we believe the public are greatly concerned."
Mr English said Mr Williamson had resisted every attempt to reconcile the issue, which had included offers of substantial promotion and portfolios he was interested in.
"What you have seen today is the end of the road," he said.
"This isn't about the leadership or the criticism of the leadership. This has been about whether or not one person will sign up to the team.
"The party conference was like the team going along to the big game to find that one person actually intended to play for the opposition."
Mr Williamson was a capable and talented MP, and it was unfortunate those talents would would not be used.
"I have known him for 13 years as an MP," Mr English said.
"I know what he is capable of...it's very unfortunate he was not able to offer those talents to the team."
When Mr Williamson's suspension takes effect on Thursday, Parliament will have two MPs without a caucus.
ACT's Donna Awatere Huata has been under suspension since January.