Mr Dover quit his role as chief whip this summer
A Conservative MEP is being expelled from the party after the EU Parliament told him to repay £500,000 in expenses paid to his family for office work.
Den Dover, a former chief whip who has denied any wrongdoing, was stripped of the party whip after an EU probe found him guilty of a conflict of interest.
The decision was taken after consultation with leader David Cameron.
The Lib Dems welcomed the move but one Labour MP said the Tories must "forfeit" any cash Mr Dover gave them.
Mr Dover, who represents the North West in the European Parliament and is a former MP for Chorley, has said he will repay all the money and has denied breaking any parliamentary rules.
He quit his position as chief whip this summer amid allegations about his conduct.
He was accused of paying about £750,000 in staff and office allowances to a family owned firm HP Holdings, thus directly benefiting his wife and daughter.
It emerged on Wednesday that an investigation by the secretary general of the European Parliament concluded that Mr Dover's behaviour had constituted a conflict of interest.
The case has been referred to the European Parliament's fraud unit.
Philip Bushill-Matthews, the leader of the Conservative Party's MEPs, said Mr Dover had informed him that he would be required to repay the Parliament a "significant six-figure sum".
"On the basis of this information and after consulting David Cameron, I have instructed the MEP's chief whip to withdraw the whip from Mr Dover with immediate effect.
"This, in turn, means that he will not be a Conservative candidate at the European elections in 2009."
The conduct of Tory MEPs has been under scrutiny recently after a number of allegations about their use of parliamentary expenses.
The previous leader of the Tories in Brussels, Giles Chichester, quit the role earlier this year amid claims that he had broken expenses rules by paying thousands of pounds in staff allowances to a firm of which he was a paid director.
However, he was subsequently cleared of any wrongdoing by a parliamentary investigation which concluded he had not gained personally from the arrangement nor had it in any way constituted a conflict of interest.
In response, Mr Cameron sent the party's financial troubleshooter, Hugh Thomas, to Brussels to launch a clean-up of MEP expenses and to bring disclosure requirements into line with those for MPs.
Lib Dem MEP Chris Davies, who has lobbied for much tougher action over the abuse of parliamentary expenses, said it was vital that voters had faith in the integrity of their elected representatives.
"The European Parliament's insistence that money inappropriately used be repaid has been backed up by firm and welcome action by the Conservative Party," he said.
"This is good for the European Parliament and trust in politics."
But Labour MP Denis MacShane, a former minister for Europe, said the Tories had to "get their house in order".
"The Tories must immediately forfeit any money they have received from Den Dover or companies associated with him," he said.