Ambitious Chinese Communist Party leadership contender Bo Xilai has been sacked from his post as head of the city of Chongqing in a dramatic move that exposes growing ideological divisions just as a new generation readies to take power.

His abrupt downfall, announced on Thursday by the official Xinhua news agency, threatens to kindle tension between his supporters, who favour a more traditional, state-dominated version of socialism, and liberal critics, who saw him as a dangerous opportunist.

Bo was removed as party boss of Chongqing, a sprawling urban region in the southwest that he turned into a bastion of Communist revolutionary-inspired red culture and egalitarian growth, a day after being rebuked by Premier Wen Jiabao in a news conference broadcast across the country.

The telegenic Bo had been a strong contender for top leadership, but his career prospects came under intense speculation after Vice Mayor Wang Lijun, his long-time police chief, went to ground in February in the U.S. consulate in nearby Chengdu until he was coaxed out and placed under investigation.

In a separate statement, Xinhua said Wang had also been removed from his post. It gave no other details.

Xinhua said Vice Premier Zhang Dejiang will replace Bo.

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While Bo might be kept on in some role until the Communist Party leadership succession later this year, his hopes for promotion to a top job were finished, said Chen Ziming, an independent scholar in Beijing who follows party politics.

Now it looks like Wen Jiabao's comments yesterday represented the leadership's collective view that Bo needed to go, said Chen, referring to the Chinese premier's pointed rebuke of Bo on Wednesday.

This will affect the leadership politics for the 18th Congress, because this opens up new uncertainties about who is in contention, said Chen.

The 18th Party Congress late this year will see China's biggest leadership transition in nearly a decade, with Party Chief Hu Jintao and other elders due to retire and hand power to a younger generation headed by Vice President Xi Jinping.

DRAMATIC SPIRAL

Bo's dramatic spiral from a confident defence of his policies at a news conference last week to ignominious dismissal this week has come while central authorities push forward with an investigation into Wang's flight to the U.S. mission, and also after some central leaders, including the domestic security chief Zhou Yongkang, appeared to give Bo some public backing.

Premier Wen added to the cloud around Bo on Wednesday by scolding Chongqing over the scandal and obliquely warning against nostalgia for the Mao Zedong era.

Well, the good news I guess, is that the risks of leftism and extremism in Chinese politics have just taken a nose dive, said one of those critics, David Zweig, a scholar of Chinese politics at the Hong Kong University of Science and Technology.

I guess nobody really knew what he believed in, except self promotion, and now the self promotion has done him in, which is good, said Zweig.

But Bo has plenty of fans in China, attracted to the idea of a Chongqing model of development that promises greater social equality. They are likely to be riled by his removal.

The removal of Bo Xilai is a real shock to me. We don't know whether it's because of his personal errors or is an attack on the Chongqing model, said Sima Nan, a leftist writer and broadcaster in Beijing who has praised Bo.

If this amounts to a negation of the Chongqing model, then I can't agree with this decision.

The man who takes over Chongqing from Bo, Vice Premier Zhang, studied economics in North Korea and is a former party boss in the export-dependent southern province of Guangdong. Unusually, he retains his vice premiership despite his new position.

Three sources with direct ties to Chongqing government officials said Bo's removal was announced on Thursday morning at a meeting in the city. They all spoke on condition of anonymity to protect themselves and their sources.

The fact that the Xinhua announcement did not stress that Bo will be placed in another post means that he's probably going to be put under investigation, and there won't be any conclusion on his future until the end of that investigation, said one of the sources, a journalist with wide-ranging contacts among central officials.

Calls to two Chongqing city government officials for comment were not returned.

The interest in Bo on the sidelines of a parliament session, including a rare grilling by foreign media at a news conference last week, underscored how much he has stirred up the typically stolid Chinese political scene ahead of the leadership succession.

Chongqing authorities said last month that Wang had taken sick leave, sparking speculation he had been purged and had sought asylum at the U.S. Consulate in Chengdu.

Wang had been a key figure in a drive against organised crime that was pursued by Bo, who has also encouraged a revival of socialist culture from the time of Mao while seeking to transform Chongqing's economy into a model of more equal growth.

Xinhua did not mention whether Bo could lose his seat in the Politburo, a central decision-making body that sits under the more powerful Standing Committee. The Politburo itself would have to make that decision.

This adjustment was made by the central government taking into account the present situation and after careful consideration, Xinhua paraphrased Li Yuanchao, head of the party's powerful personnel department, as saying.

(Editing by Don Durfee, Brian Rhoads and Jonathan Thatcher)