Two Iraqis were killed and 45 others injured during the protest on Sunday in the provincial capital of Samawa, the Defence Ministry said.
Muthanna's provincial council, elected in January at the same time as the new federal parliament, voted on Monday to sack Muhammad Ali Hassani at an emergency meeting held in the presence of an envoy of Prime Minister Ibrahim al-Jaafari.
Al-Jaafari on Monday strongly criticised the governor for ordering security personnel to use force against demonstrators protesting over the poor state of water and electricity services. Al-Jaafari sent a delegation led by Interior Ministry Undersecretary Adnan al-Assadi to the southern city to quell public anger.
"Eighteen members voted for the dismissal, one against and five abstained," according to a local official from the southern Iraqi town.
Local officials had earlier declared a state of emergency, forbade armed men from entering the town and informed foreign forces in the area - where Japan's military contingent is based - about the situation, according to the Defence Ministry.
Roadblocks were set up during
the riot in Samawa
Three mortar rounds hit the city on Monday - one landed near the governor's office and two near the headquarters of the Supreme Council for the Islamic Revolution in Iraq (SCIRI), the country's main political party, an AFP correspondent reported.
In Sunday's demonstration, about 1000 people marched to the governor's office protesting against corruption and demanding reliable electricity and water supplies.
The building's guards fired in the air when some protesters tried to storm the building, the Defence Ministry said, adding the crowd set three cars ablaze.
"To protest is a natural right and a civilised method to let one's opinion be known, even if the protesters are criticising the prime minister or the governor," al-Jaafari said at a meeting of governors in Baghdad on Monday.