At a special board meeting held Thursday, directors at Nissan unanimously voted to drop Carlos Ghosn as the automaker's chairman and representative director.
Japanese media, citing unidentified sources, have reported that Ghosn and Greg Kelly, an executive who was arrested on suspicion of collaborating with Ghosn, are asserting their innocence.
Renault is the dominant partner in the alliance, holding 43 per cent of the shares in Nissan, but the Japanese firm outsells its French counterpart - sparking concern in Tokyo about the balance of power.
Mitsubishi Motors already had plans to discuss its position in the alliance with Ghosn and, following the ouster, it needs to consider focusing on regions and technology where it can retain competitiveness, CEO Masuko told reporters after the board meeting. Ghosn remains CEO and chairman of Renault.
The compensation packages for Ghosn, one of the most celebrated and well-paid leaders in the global auto industry, have been a sore point among investors of the Renault-Nissan alliance which he helped launch in 1999. Nissan is reportedly considering filing a civil damages lawsuit or criminal complaint against Ghosn as it closely monitors the investigation.
Reports from Japan indicate that the under-reported income amounts to between $44.3 million and $71 million over a five-year period, according to Automotive News. Chief Executive Officer Osamu Masuko will take on additional responsibility as chairman.
The three companies are bound together by cross-shareholdings that could be complicated to unpick.
Under Japanese law, a suspect can be held in custody for up to three weeks per suspected crime without any charges being filed. It employs about 450,000 people worldwide.
"We (have) had two years of the alliance and there were positive parts. and parts that needed to be revised a little from Mitsubishi Motors" point of view, ' said Masuko.
The French vehicle giant has decided not to dismiss Mr Ghosn from his positions as chairman and chief executive, though it has appointed interim replacements while he remains "temporarily incapacitated".
On Wednesday, prosecutors were given 10 more days to question Mr Ghosn.
French Finance Minister Bruno Le Maire weighed in on Sunday saying he had yet to see evidence to support allegations of wrongdoing.
At the Tokyo close, Nissan was up almost 2% and Mitsubishi Motors enjoyed an even sharper bump - up more than 3% just ahead of the board meeting.
Le Maire added, however, that he did not believe "conspiracy theories" that Ghosn had been the victim of a "palace coup" to prevent him from merging Nissan and Renault.