The top civil servant in the Department for Regional Development (DRD) has been suspended pending an investigation into events relating to NI Water (NIW).
The civil service said the suspension of Paul Priestly was to facilitate the investigation and was not a disciplinary penalty.
Regional Development Minister Conor Murphy has issued a statement saying Mr Priestly's position was untenable.
He said he had been in contact with the head of the civil service on the issue.
The minister has offered to meet the DRD Committee within weeks to answer questions.
It follows calls by its vice-chairman, Michelle McIlveen of the DUP, for a special sitting of the committee and full disclosure from the department.
Mr Priestly has been in the job for two and a half years and is the chief advisor to the minister.
His suspension came a day after a UTV investigation which examined Mr Priestly's role in relation to sackings of four NIW board members.
They were sacked by the minister in March after an independent review found they were culpable for a breakdown in procurement procedures which meant that £28.5m of contracts were awarded without being correctly tendered.
However, the UTV programme uncovered documents which purported to show that Mr Priestly, who jointly commissioned the independent review, was given an early draft of its report and asked for changes to be made to it.
Those changes are alleged to have directed criticism on procurement matters away from the DRD and onto the NIW directors.
Mr Priestly then gave evidence about the matter to Stormont's spending watchdog, the Public Accounts Committee (PAC), in July.
At that hearing some members of the PAC raised questions about just how independent the review had been.
BBC Newsline's Julian O'Neill said it was events following that (PAC) hearing which have brought about Mr Priestly's suspension.
"Conor Murphy said he spoke to Mr Priestly on Tuesday by telephone and new information came to light," he said.
"He doesn't say what it is but as a result he considers Mr Priestly's position no longer tenable."
It is known in the days after the hearing one of the independent review team wrote to the PAC complaining about its line of questioning. That complaint was later withdrawn.
The SDLP's John Dallat, a member of the assembly's Public Accounts Committee, said a wide-ranging inquiry was needed.
"We really want to see an inquiry that has got quality, has got prestige and exonerates those four people who were treated very badly," he said.
"I do think the four people who were sacked should be reinstated. I think there's time for reflection for a lot of people who were involved in an injustice."
Ms McIlveen said it was a "deeply serious situation, unprecedented in the assembly".
"Whilst we need to establish the truth about the role of the permanent secretary, many will question how the DRD minister was able to offer defence for the permanent secretary and in less than 24 hours make a compete U-turn," she added.
Her fellow committee member, Conall McDevitt of the SDLP, said it was "a very serious development".
"I am calling for an immediate recall of the Regional Development Committee to hear witness from the minister himself and other senior officials involved in the suspension of the permanent secretary," he said.
"It's essential that all steps are taken to maintain public confidence in the minister's stewardship of the department and regional development policy."