Prime Minister Yousuf Raza Gilani who had approved Mr Khwaja's appointment as head of the country's largest oil and gas producer asked him to 'immediately pack up' during a meeting on Thursday.
A formal order was issued soon afterwards to 'de-notify' Mr Khwaja's appointment.
The Supreme Court had said on Wednesday that Chief Justice Iftikhar Mohammad Chaudhry had taken suo motu notice because “Adnan A. Khwaja was co-accused in a corruption case filed by the National Accountability Bureau under section 10 of the NAB Ordinance. He was convicted in that case with two years rigorous imprisonment and fine of Rs200,000 in July 2001”.
It said Mr Khwaja was also “disqualified for a period of 10 years from seeking or being elected, chosen, appointed or nominated as member of any public office, any statuary or local authority of the government or granted any financial facilities in the form of any loan by any bank owned by government for the period of 10 years”.
The court had acted on media reports that Mr Khwaja was a beneficiary of the NRO, a law declared null and void by the apex court, reviving all cases settled under the controversial ordinance.
Sources said that at the request of Mr Khwaja, the OGDCL officers, association had decided to hold a press conference on Thursday to contest media reports and express full confidence in his leadership.
The event was cancelled, again at the request of Mr Khawaja, after his meeting with the prime minister.
With the de-notification, the race has begun for the lucrative job.
The sources said that Naeem Malik who had earlier been looking after the OGDCL as acting managing director and the petroleum minister wanted him to be given permanent assignment was advised by his friends not to accept the job.
The sources said a former senior executive director Najam Kemal Hyder, another former OGDCL chief during the Musharraf era, M. Raziuddin, and Rai Sikandar, a grade 20 officer from Punjab whose brother was a friend of President Zardari were being considered for the top job.
The post of managing director fell vacant in January this year after Zahid Hussain quit the job following a controversy about delayed installation of compression facilities at Qadirpur gas field.
After Mr Hussain's resignation, senior Intelligence Bureau official Shah Mahboob Alam was made OGDCL's acting chief until his retirement last month.