Bill Shorten last night instructed Senator Sam Dastyari to stand down from his additional parliamentary responsibilities because of comments he made to Chinese media.
Mr Dastyari is set to resign from the roles of deputy opposition Senate whip and Senate committee chair.
"Last night I spoke to Senator Sam Dastyari and told him to resign from his senior Labor positions in the Senate," Mr Shorten said in a statement.
"It is not a decision I took lightly.
"I told Senator Dastyari that his mischaracterisation of how he came to make comments contradicting Labor policy made his position untenable.
I told Senator Dastyari that his mischaracterisation of how he came to make comments contradicting Labor policy made his position untenable.
"I also told him that while I accept his word that he never had, nor disclosed, any classified information, his handling of these matters showed a lack of judgment."
The Labor senator is under fire over comments he made at a press conference in China in 2016, where he contradicted Australia's bipartisan foreign policy on Beijing's aggressive territorial claims in the South China Sea.
"The Chinese integrity of its borders is a matter for China," he said.
"And the role that Australia should be playing as a friend is to know that within several thousand years of history – thousands of years of history – where it is and isn’t our place to be involved.
"And as a supporter of China and a friend of China, the Australian Labor Party needs to play an important role in maintaining that relationship. And the best way of maintaining that relationship is knowing when it is and isn’t our place to be involved."
The audio of the conference, leaked to Nine News last night, flies in the face of Mr Dastyari's defence on ABC radio that he was caught off-guard by the question and mumbled his way through an answer.
It also follows allegations he tipped off businessman Huang Xiangmo about a possible phone-tap last year, allegedly instructing the Chinese businessman with Communist Party links, to leave his phone inside so that their conversation could not be recorded.
The revelation prompted Prime Minister Malcolm Turnbull to question Mr Dastyari's loyalty.
"Whose side is Senator Dastyari on? Not Australia’s it seems," he said.
"Why did he say to Huang Xiangmo ‘Let’s put our telephones inside so no-one can hear all we are saying?’
"What was his main reason for doing that?
"If it was, as it is clearly to be inferred, so Australian agencies cannot hear what he was saying to Huang Xiangmo, then whose side is Sam Dastyari on?
"We expect Australian senators to be the side of Australia, not assisting foreign governments."
This will be the second time Mr Dastyari has been dumped from the frontbench, after he allowed a Chinese-linked group headed by Mr Xiangmo to pay a personal legal bill in September 2016.
It has been a trying month for Mr Dastyari. Earlier in November, he was verbally assaulted by extreme right-wing group Patriot Blue at a Melbourne pub, who on top of calling him a terrorist, referred to him as "Shanghai Sam" (a nickname given to him in 2016) and brought up his links to China.