"We can confirm that Khin Nyunt has been removed from the position of prime minister and is being detained under house arrest," Thai government spokesman Jakrapob Penkair told the Associated Press.
Diplomats in Burma and other senior Thai officials claimed Gen Khin Nyunt, who is number three in the military junta, had lost a power struggle with its most powerful figure, General Than Shwe.
Unconfirmed reports from Thailand said Gen Khin Nyunt, who is seen as a relative moderate, had been accused of corruption and place under house arrest.
In Burma, which is a highly closed society, there were rumours that Gen Khin Nyunt had been forced to resign and that soldiers had raided the military intelligence headquarters, which were said to no longer be under his control.
Observers said that if the reports were true, the hardliners in the junta would have a more powerful position to hamper reconciliation efforts with the pro-democracy opposition led by Nobel Peace laureate Aung San Suu Kyi.
Thai General Lertart Rattanatavanich told reporters in Mai Sot, a town on the border with Burma, that Thai army reports indicated that the junta "is unhappy with Gen Khin Nyunt and they want to remove him from his position". "We believe that whatever has happened is about changing the position of Prime Minister Khin Nyunt," he said.
The Thai prime minister, Thaksin Shinawatra, who was holding a cabinet meeting in Mai Sot, said he had received reports that there was "some political tension" in Burma but could not confirm what was happening.
There was no sign of tanks or increased military presence on the streets of the Burmese capital, Rangoon. Gen Khin Nyunt became prime minister in August last year. The role had previously been seen as a ceremonial position, and Burma observers say his appointment was probably a demotion from the positions he had previously held in the ruling clique of generals.
Despite Gen Khin Nyunt being considered something of a moderate, he did not succeed in convincing other generals to strike a deal with Ms Suu Kyi to restore democracy to the impoverished south-east Asian country.
Over the past year, Gen Khin Nyunt has promoted what he called a road map toward democracy in UN-brokered contacts between the government and Ms Suu Kyi's party, the National League for Democracy. The talks were unfruitful, and critics accused the government of using stalling tactics to retain its grip on power.
Burma has been ruled by the military since 1962, when army commander Ne Win seized power. The country was renamed Myanmar by the junta in 1989, a name recognised by the UN but not by some countries including the UK and the US, which do not recognise the military dictatorship.
Pro-democracy protests led by Ms Suu Kyi were bloodily suppressed in 1988, and Gen Khin Nyunt was one of the younger generation of generals who assumed power.
