Downing Street says British Business Secretary Vince Cable will stay in cabinet despite declaring war on Rupert Murdoch.
But the BBC reports he will be stripped of his powers to rule on Mr Murdoch's bid to take control of BSkyB after being recorded by undercover reporters making hostile remarks about News Corporation.
Mr Cable was recorded as saying he's declared war on Mr Murdoch and was going to win.
A member of the junior coalition party, the Liberal Democrats, Mr Cable also suggested he may quit and bring down the government.
Mr Cable was to have had the final word on whether News Corporation can buy the 61% of satellite broadcaster BSkyB that it does not already own.
The government on Tuesday issued a statement saying Mr Cable is to play no further part in the decision process.
Culture Secretary Jeremy Hunt is to make the decision instead.
However, Mr Cable will remain in the cabinet.
Downing Street said Prime Minister David Cameron believed Mr Cable's comments about Mr Murdoch were totally unacceptable and inappropriate.
Labour leader Ed Miliband said he would have sacked Mr Cable.
Mr Cable said in a statement:
I fully accept the decision of the Prime Minister and Deputy Prime Minister. I deeply regret the comments I made and apologise for the embarrassment that I have caused the government.