Party sources said Mr Tudose resigned moments after Social Democrat Party (PSD) seniors voted to withdraw political backing for the prime minister.
He is the second Social Democrat leader to fall victim to internal party disputes in seven months.
PSD senior Paul Stanescu has been appointed as interim prime minister, party officials said.
It comes mere days after Mr Tudose made a veiled threat to hang members of Romania’s ethnic Hungarian minority over demands for autonomy.
Hungary summoned Romania’s ambassador on Friday to formally complain about Mr Tudose’s controversial remarks.
He had told Realitatea TV: “I have sent message that if the Szekler flag flies over the institutions over there, they will all fly next to the flag. Autonomy for Szeklers is out of the question.
“As long as they sing in their yard, that is one thing, but from a legal point of view things are very clear.”
Szeklers account for a large chunk of ethnic Hungarians living in the Romanian region of Transylvania.
The PSD also removed its own government in June 2017 after accusing previous prime minister Sorin Grindeanu of “delays” in bringing in reforms.
Mr Grindeanu initially refused to resign after the party withdrew its support, accusing PSD boss Liviu Dragnea of trying to “concentrate all the power in his own hands”.
Mr Dragnea, barred from running for office due to a fraud conviction, is believed to pull the strings behind the scenes of the PSD. He and Mr Grindeanu reportedly clashed after the then-prime minister began to operate independently.
More to follow.