Simon Bridges has been dumped from the shadow cabinet and demoted to the backbenches.
The shock news came in a media release from National Party leader Judith Collins just after 9.30pm on Wednesday amid much speculation that Bridges was considering a tilt at the top job.
Bridges is accused of making crude remarks of to a "female caucus colleague" in front of other National MPs at a party function five years ago.
RNZ understands the MP who laid the complaint is Jacqui Dean.
RNZ has been told that Bridges apologised to Dean following the incident.
The Waitaki MP has been approached for comment.
Collins says she had no option but to immediately demote the Tauranga MP and strip him of his portfolio responsibilites with the unanimous support of the board and the party would not tolerate harassment and intimidation of any person.
National Party MP Chris Bishop spoke to Susie Ferguson.