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Security forces surrounded the USDP offices on Wednesday, preventing officials from leaving.
Myanmar is holding elections in three months, its first since democratic reforms began in 2011.
Shwe Mann had been rumoured to be discussing an alliance with opposition leader Aung San Suu Kyi.
Ms Suu Kyi's National League for Democracy (NLD) is expected to do well in the 8 November elections, while many believe the ruling Union Solidarity and Development Party (USDP) will perform poorly.
However, Ms Suu Kyi is barred by the constitution from contesting the presidency, so negotiations between the NLD and USDP could help determine who ends up leading Myanmar, also known as Burma. Until last night Shwe Mann, one of the most capable generals in the old military regime, had been seen as a likely successor to President Thein Sein, the BBC's South East Asia correspondent Jonathan Head reports.
Thein Sein and Shwe Mann are said to have had a tense relationship, with both men suggesting they would accept the role of president.
The two also disagreed over potential election candidates, reports said.
Sources say Shwe Mann has now been replaced by a conservative known to be close to Thein Sein and formerly military ruler Than Shwe.
Security forces could be seen outside his home on Thursday.
"Shwe Mann isn't the chairman of the party anymore," a USDP member told Reuters. "He's in good health and at home now."A nominally civilian government was introduced in Myanmar in 2011, ending nearly 50 years of military rule.
President Thein Sein introduced reforms including freeing hundreds of prisoners and relaxing media censorship.
However, the military still maintains massive influence in Myanmar's politics, with a quarter of seats in both parliamentary chambers reserved for the military.
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