Burma's national intelligence bureau, which was established more than 20 years ago with wide-ranging powers, has been dismantled, state TV has reported.
Khin Nyunt was head of the military intelligence unit
The military government was quoted as saying the unit was no longer relevant as the country moved towards democracy.
Earlier, a Burmese opposition group claimed there had been a purge of senior military intelligence officials in the last couple of days.
The unit had been headed by PM Gen Khin Nyunt who was removed on Tuesday.
Burmese state media said at the time he had retired on health grounds, but officials in Thailand said he had been ousted and was under house arrest.
The Democratic Voice of Burma, an opposition radio station based in Norway, said it had learnt of several divisional commanders and captains in military intelligence being sacked or arrested.
It was confirmed that one senior figure, Major General Myint Zaw - who had been in charge of border affairs within the powerful office of strategic studies - had been detained.
Analysts say there has been conflict between the military intelligence and regular army for some time.
As chief of military intelligence, Khin Nyunt was said to be frequently in disagreement with Burma's paramount leader Than Shwe, who controls the entire army.
"They have often been at loggerheads," Aung Zaw, the editor of Irrawaddy, a publication run by Burmese journalists in exile, told BBC News.
Burmese Foreign Minister Nyan Win was quoted by AFP news agency on Friday as telling diplomats that Khin Nyunt had retired for health reasons.
But he also said Khin Nyunt had to "bear his share of responsibility" for corruption within military intelligence, AFP quoted a source as saying.