Freddy Bongo was removed because of his "insensitivity to the security situation in his domain and complicity in the violence which led to destruction and deaths", a spokesman for Adamawa state Governor Boni Haruna said on Saturday.
Fighting erupted on Tuesday in Numan, 50km south of the state capital Yola, between Bongo's majority Christian Bachama tribe and the minority Hausa-Fulani Muslims, over the reconstruction of a mosque.
Governor Haruna announced the chief's removal in a radio and television address on Friday, spokesman Willie Zalwalie told AFP.
Bongo had complained that the mosque's minaret was too high and overlooked his palace walls.
The state governor has also ordered the mosque be relocated away from the palace to bring an end to the hostilities, Zalwalie said.
"Nobody can tell you the exact fatalities. People are only guessing"
Adamawa state governor's spokesman
"The government felt that the presence of the mosque where it is at present will always remind the people of Numan of the gory incidents of the past few days and will keep the flame of hatred alive," Zalwalie said.
He added that the government would bear the cost of the new mosque.
The Muslim community has been trying to rebuild the mosque since it was burnt down during deadly riots last year, sparked when a Christian evangelist was murdered by a Muslim water vendor over payment of a jerrycan of water.
The recent outbreak of fighting has driven more than 2,000 people from their homes, according to the Red Cross.
A Red Cross spokesman in Nigeria, Patrick Bawa, said on Saturday that more than 226 wounded had been evacuated from the site of the violence to hospitals in Numan and Yola.
Communal clashes have scarred
Africa's most populous country
He declined to give an updated figures of the dead, citing the need to protect Muslim and Christian Red Cross workers in Numan from possible reprisals.
On Friday, the Red Cross had given the known toll as 37 dead. But a local state reporter said he had seen 50 bodies in the town's hospital mortuary, while a second reporter later said another 50 bodies had been found.
A dusk-to-dawn curfew imposed in Numan has been extended to the capital Yola, where thousands of displaced Muslims from Numan are seeking refuge, to forestall a spillover of violence, said the governor's spokesman.
Governor Haruna has also reconfirmed an order to police to shoot rioters and vandals on sight.
Zalwalie was unable to give a final death toll, saying a clearer figure would be available once the displaced people had returned to their homes.
"The government felt that the presence of the mosque where it is at present will always remind the people of Numan of the gory incidents of the past few days and will keep the flame of hatred alive,"
Governor's spokesman Zalwalie
"Nobody can tell you the exact fatalities, people are only guessing. We have to wait for those who fled their homes to return before we can know the actual number of those killed. For now any toll given is just a conjecture."
Nigeria is Africa's most populous nation with 130 million people, divided roughly evenly between Muslims and Christians.
In the five years since the country embraced civilian rule from its latest bout of military dictatorship, more than 10,000 people have died in a series of localised but bloody conflicts
between ethnic or religious groups.
Tensions are again running high after clashes between Muslims and Christians in May in the northern city of Kano and the central state of Plateau left hundreds dead and tens of thousands of people homeless.
President Olusegun Obasanjo has declared a state of emergency in Plateau, suspending its elected governor and state assembly members, and warning that local leaders will be held accountable for further violence.