Mahamat Nour, a former rebel leader who had been brought into Chadian President Idriss Deby's government, has lost his job as defence minister.
President Deby (L) no longer trusts Mr Nour (R)
Mr Deby had become doubtful that the rebels Mr Nour had once led, the United Front for Change (FUC), remained loyal to the government.
The government is currently at war with another group, the Union of Forces for Democracy and Development (UFDD).
Mr Deby fears that a renewed FUC revolt could make fighting the UFDD harder.
Mr Nour was sacked after seeking refuge at the Libyan embassy in N'Djamena, Chad's capital.
"We could not understand why he went to take refuge in an embassy of a friendly country," said Chad's Foreign Minister Ahmat Allam-Mi.
Former FUC fighters have since last month been involved in violent clashes with Chadian troops, most of whom are members of a rival ethnic group.
The former FUC rebels belong to the Tama ethnic group, while the Chadian army is mainly made up of members of the Zaghawa tribe, to which President Deby also belongs.
The Tama and Zaghawa have a long history of violent rivalry, but there had been hopes that a 2006 peace deal brokered by Libyan President, Colonel Gaddafi, would end the clashes.
One condition of the peace settlement was the appointment of Mr Nour as defence minister.
As part of the deal, Mr Nour was supposed to organise for his fighters to be disarmed and assimilated back into the Chadian army.
But the BBC's Stephanie Hancock in Chad says progress on disarmament was extremely slow and distrust between the President and Mr Nour grew almost daily.
The recent clashes came about after former FUC rebels claimed the army had tried to forcibly disarm them.
Mr Allam-Mi says the violence demonstrated to the government that the former FUC fighters' loyalty was in doubt.
And with the government still battling the UFDD, our correspondent says observers will be watching closely to see how Mr Nour's FUC allies will now react to his dismissal.