President Zuma told a press conference in Pretoria he had “decided to release Gen Cele of his duties”.
This is coming after a commission of enquiry found him “unfit for office” over leases for police offices at far above market rates.
“Having thoroughly considered the report of the board and applied my mind thereto, I’ve decided to release General Cele from his duties,” Zuma told a news conference.
He also announced a cabinet reshuffle, naming former prisons minister Nosiviwe Mapisa-Nqakula to replace unpopular defence minister Lindiwe Sisulu, who now heads public services.
Transport minister Sibusiso Ndebele was also axed after a disastrous tolling project on Johannesburg’s main roads was stalled amid public protests.
Three years into his term, Zuma has become known for regular cabinet reshuffles, the previous one being conducted less than a year ago.
Appointed in 2009, Cele was fingered in irregular leasing deals for police offices from business tycoon Roux Shabangu, who was paid high above market prices for the buildings.
Mangwashi Phiyega was appointed the new national police commissioner with immediate effect. A technocrat with considerable management experience, she has been a trustee of Nelson Mandela’s foundation and an executive at Barclays-owned banking group Absa.
South Africa’s police service has been wracked with successive scandals.
Cele’s predecessor Jackie Selebi, a former Interpol president, is serving a 15-year jail sentence for accepting gifts from a convicted drug trafficker.
The repeated controversies have undermined public faith in police in South Africa, one of the most dangerous countries in the world outside of war zones.