The bombshell is in reaction to comments from Economy Minister Arnaud Montebourg, who called for a u-turn in government direction at the weekend.
The high profile minister criticised his own government’s new economic priority of tackling the deficit and trying to kickstart business, which President Hollande publicly embraced in December.
In an interview in left-of-centre Le Monde newspaper on Friday, Montebourg also in criticised Germany’s pre occupation with budgetary rigour.
Hollande ordered Prime Minister Manuel Valls to form a new cabinet "consistent with the direction he has set for the country", the presidency said in a statement, which was released just after 0930.
Prime Minister Manuel Valls’ entourage had declared on Sunday that Montebourg had “crossed a yellow line”.
The presidency said the new cabinet line-up would be announced on Tuesday.