The Labour Party caucus has backed David Shearer unanimously as leader.
Mr Shearer emerged from an urgent caucus meeting early on Tuesday evening saying the show of support should end doubt about his leadership.
He had called the meeting because of speculation senior MP David Cunliffe would mount a leadership challenge.
As a result, Mr Cunliffe has been demoted to the backbench, and stripped of his economic development and associate finance portfolios.
"I regret having to take this action against him today but he has left me with no choice." Mr Shearer says. "He now needs to take time to reflect on his ability to be a team player."
Mr Shearer says he needs a caucus that is fully behind him as leader.
"Sadly David Cunliffe has not been able to show that loyalty. His actions at the weekend were disappointing, not only to me, but to many party members. His repeated failure to quell speculation about my leadership means I no longer have confidence in him. He has lost my trust."
Mr Shearer says Mr Cunliffe is a talented MP and it is possible there is a road back from the backbench.
The party leadership will be reviewed again in February, and Mr Shearer says he is confident he will still be leader after that.
None of Mr Cunliffe's supporters have been demoted, but Mr Shearer says he has left the caucus in no doubt they need to pull together.
Policy announcements and remits at Labour's annual conference in Auckland at the weekend were overshadowed by arguments about the leadership.
Mr Shearer said earlier he called Tuesday's meeting to demonstrate that he had the support of his caucus so it could focus on the serious challenges facing New Zealand.
PM says Labour still deeply divided
Prime Minister John Key says the Labour Party still has major divisions within its caucus despite it voting to stick by Mr Shearer.
"They haven't actually resolved their issues; they fundamentally don't like each other," says Mr Key.
"They can't agree on the direction they're going. They can't actually really agree on their leader and yep, they'll put a united front on it today but that's not actually going to fall anyone."
"At some point in the future David Cunliffe is coming back after David Shearer."