Burma's prime minister has been ousted and put under house arrest after a lengthy power struggle that has tightened the grip of hardliners in the military government, Thai diplomats say.
Mr Khin Nyunt's removal, yet to be confirmed by Rangoon, was not expected to trigger a wider conflict within the military.
But prospects for political change looked dimmer than ever in a country considered a pariah by the West for its detention of democracy icon Ms Aung San Suu Kyi and dismal human rights record.
"Change has never looked farther off than it is now," a Bangkok-based Western diplomat told Reuters on Tuesday.
Thai authorities said Mr Khin Nyunt (64) had been stripped of the prime minister's post and put under house arrest.
"The person who signed the order said Khin Nyunt had been involved in corruption and not suitable to stay in his position," said Thai government spokesman Mr Jakrapob Penkair.
Witnesses said security had been tightened in Rangoon, with troops seen in the streets. But the city was calm.
Diplomats said that according to rumours Mr Khin Nyunt was arrested by officers loyal to army commander and Vice Senior General Maung Aye, the number two in the military junta.
Speculation has been rife for months of a widening rift between Mr Khin Nyunt, who had struggled since he was appointed last year to implement his "roadmap to democracy", and Mr Than Shwe, the de facto chief of the secretive Yangon government.
The military has ruled Burma in various guises since 1962 and refused to hand over power to Nobel laureate Ms Suu Kyi after her National League for Democracy won a 1990 election.