The Elysee Palace said that Alexandre Benalla would be dismissed after "new elements" emerged in the case, namely that he is suspected of unlawfully receiving police surveillance footage in a bid to prove his innocence.
A source close to the inquiry also said that three officers, including two high-ranking officials, have also been suspended on suspicion of providing the footage to Benalla.
He is facing charges of violence by a public official, impersonating a police officer and the illegal use of police insignia, and complicity in unauthorised use of surveillance footage, the Paris prosecutor's office said.
French daily Le Monde published this week a video taken by smartphone showing Benalla manhandling and striking a protester while wearing a police helmet and visor during a May 1 demonstration.
In a second video published by the paper late Thursday, Benalla -- who has never been a policeman -- is also seen violently wrestling a young woman to the ground.
Macron's office said earlier this week that he had been given permission to "observe police operations".
A few days after the incident Benalla was suspended without pay for two weeks and transferred to an administrative role instead of organising security for Macron's trips.
But the incident was not reported to prosecutors.
Also on Friday prosecutors said Vincent Crase, a security aide for Macron's Republic on the Move party and an associate of Benalla's who also intervened during the May 1 protest, was also taken into custody.
The scandal comes with Macron's popularity at a record low, defying analysts' expectations of a post-World Cup bump -- with an approval rating of just 39 percent in a BVA poll carried out on Wednesday and Thursday.
The attempt at damage control follows an outcry by Macron's critics, not least because the 40-year-old former investment banker won the presidency with pledges to restore transparency and integrity to the nation's highest office.
Just days after the May 1 demonstrations, which were marred this year by anarchists who clashed with police and attacked shops, Macron tweeted that "everything will be done so that those responsible will be identified and held accountable for their actions."
Several newspapers on Friday assailed the president's refusal to address the scandal despite repeatedly being questioned by journalists during a visit to southwest France on Thursday.
"By not immediately managing a disciplinary problem, Emmanuel Macron now faces a political crisis," wrote the rightwing Le Figaro daily -- which usually makes no secret of its admiration for the president.
"Without Le Monde's revelations, this would never have come to light, under the good old principle of 'not seen, not caught'," it wrote.
Lawmakers have launched their own commission of inquiry, with opposition parties demanding Friday that government officials answer questions in parliament.
"The very core of the state has been tainted. Our work must stop immediately and the prime minister must come and explain this," said Christian Jacob of the rightwing Republicains party.
Interior Minister Gerard Collomb confirmed in parliament Thursday that Benalla had "no right to intervene" at the gathering of leftwing student protestors on the Rue Mouffetard, a picturesque Left Bank street loved by tourists.
But in another potentially damaging twist, the BFM news channel reported that Benalla had been back on duty doing security work this week, travelling on the bus carrying France's World Cup-winning football team down the Champs Elysees for a victory parade.
The case has also prompted unflattering accounts of Benalla's behaviour from other officials who have worked with him.
Arnaud Montebourg, a former minister in ex-president Francois Hollande's government, recalled dismissing Benalla from his service after just a week because of a "serious professional failure."
"He caused an accident while acting as my driver and tried to flee the scene," Montebourg told Le Monde on Thursday.
A video released this week shows Alexandre Benalla manhandling and striking a demonstrator while wearing a police helmet, even though he is not an officer.
Paris prosecutors also said Benalla has been detained for questioning in the assault inquiry, where he also faces charges of impersonating a police officer.
Macron's office said the decision to fire Benalla was taken after "new elements" emerged in the case, which has become the most damaging scandal facing the centrist president since his election last year.
A source close to the inquiry said three police officers have also been suspended on suspicion they provided Benalla with surveillance footage of the May 1 demonstration in an attempt to prove his innocence.
"He is suspected of receiving material from the police he was not authorised to have," the Elysee said.
Lawmakers have also launched a commission of inquiry as a second video of the incident emerged, in which Benalla is also seen violently wrestling a young woman to the ground.
Benalla was punished with a two-week suspension without pay in May and later transferred to another post, but the incident was not reported to prosecutors.