Yuri van Gelder, who has a history of rule-breaking, ‘gravely’ violated his team’s restrictions on alcohol consumption.
He went out celebrating in Rio on Saturday evening after qualifying for the final of the rings event, the Dutch team said.
‘It’s terrible for Yuri, but this kind of behaviour is unacceptable,’ Dutch team ambassador Maurits Hendriks said in a statement on Tuesday.
‘In sports terms this is a disaster, but we had no other choice given the violation of our values.’
The 33-year-old left the Olympic village on Saturday evening and returned in the early hours of Sunday morning, also breaking the rules on leaving the team base.
The athlete, a three-time world championship medallist, spot in the rings final will go to France’s Danny Pinheiro Rodrigues.
He is the second replacement athlete to reach the final, after France’s Samir Ait Said broke his leg in qualifications and was replaced by Ukraine’s Igor Radivilov.
The news of his exit has sparked a series of memes on social media sites, many branding him the ‘Lord of the Drinks’.
Van Gelder, the rings world champion in 2005, has a previous instance of violating rules at a major sporting events.
In 2009, he was suspended from the Dutch Gymnastics Union for taking cocaine three days before the national championships.
He then withdrew from the world championships in 2010 after again admitting using cocaine.