State-affiliated Fana Broadcasting Corporate said that Demeke, who is also foreign minister and hails from the Amhara ethnic group, was replaced in the Prosperity Party by Temesgen Tiruneh, Ethiopia’s intelligence chief.
The party had "unanimously elected" Tiruneh in a reshuffle that followed its "leadership succession principle and operating system", Fana added.
The move was also reported by Ethiopia’s official press agency ENA.
Demeke's replacement within the party "should mean his departure as deputy prime minister as well", a source close to the government of Prime Minister Abiy Ahmed said while speaking on condition of anonymity.
"It is our understanding" that Demeke would also exit the deputy prime minister post he has held for 11 years, one foreign diplomat in Addis Ababa said, requesting anonymity.
There is no provision in the constitution linking the two positions, but the tradition runs deep.
Demeke became deputy prime minister in 2012 shortly after being elected vice-president of the EPRDF, the coalition which ruled for approximately three decades until Abiy rose to power in 2018.
Demeke succeeded Hailemariam Desalegn, who himself held both positions until he was elected president of the EPRDF and prime minister of Ethiopia upon the death of Meles Zenawi.
Once in office, Abiy merged most of the parties of the EPRDF into the Prosperity Party. Demeke was elected vice-president and retained his position as deputy prime minister.
He became foreign minister in November 2020 at the outset of the government's declaration of war against the northern region of Tigray, whose rebellious leaders rejected Abiy and his new party.
The war lasted two years until a peace accord was signed, but the deal sparked violent hostilities between Addis Ababa and their erstwhile allies in the Amhara region, which opposed the pact with Tigray.