Chongqing Municipal Committee of the CPC decided to remove Lei from the post as secretary of the Beibei District Committee and initiate an investigation into his case, state-run Xinhua news agency reported.
The video was reportedly uploaded on microblogs by his jilted mistress following a quarrel.
Earlier Lei termed the video as fake and reportedly got the woman arrested.
Chongqing municipality until early this year was governed by disgraced Party leader Bo Xilai, who himself faced allegations of sex, corruption besides attempts to shield his wife Gu Kailai's involvement in the murder of British businessman, Neil Heywood.
He is currently awaiting trial.
Lei's incident was the first to be taken up by the new leaders of the CPC headed by Xi Jinping who said corruption and indiscipline has become endemic in the Party and launched a crackdown.
Last September, another official Yang Dacai was sacked in the northwestern province of Shaanxi after photos of him wearing luxury watches appeared on the Internet.