Ardern said she no longer had confidence Meka Whaitiri as a minister.
"That is why I have taken the action I have. I've made the decision solely on this incident," Ardern said. "I'm confident in the decision I have made."
But she also left the door open for a return to the Cabinet for Whaitiri.
Whaitiri was stood aside from her portfolios on August 30 while the investigation was done by Ministerial Services.
Whaitiri had held the portfolios of Customs, Associate Agriculture, Associate Crown Maori Relations, Associate Forestry and Associate Local Government.
Minister Kris Faafoi, who took over the Customs portfolio when Whaitiri was stood down, will keep it.
Her associate minister responsibilities will revert to the lead ministers. Ardern said there were no plans for a Cabinet reshuffle.
Ardern said Whaitiri had contested the allegations.
Ardern said Labour's Maōri caucus, which had thrown its weight behind Whaitiri, the co-chairwoman, supported her decision.
Whaitiri, who hails from the Hawke's Bay settlement of Whakatu, is the MP for the Māori electorate of Ikaroa-Rāwhiti, which stretches down the east coast of the North Island.
Police Minister and Hawke's Bay MP Stuart Nash said he was disappointed with the news but had every confidence Whaitiri would win the Prime Minister's confidence back.
"I've worked closely with Meka for quite some time and she works incredibly hard, she cares about her constituents.
"The Prime Minster has made a call though, and knowing Meka, she will go away and work very hard to earn the trust of the Prime Minister back.
I think she is a very good local MP, this is a temporary setback and I think she will take on the challenge."
Tukituki National MP Lawrence Yule said he was also saddened by news.
"I worked with Meka over a decade and she's a very good, hardworking MP and has done a lot of hard work in the community, so I'm sad this has happened."
Yule said he would not comment on the incident.
"She's worked with me on the sports park when I was a trustee there, she was CEO of Ngati Kahungunu and I've always found her to work incredibly hard for her community and for the people she represents.
"While I am sad for what's happened, I don't condone bullying or anything as is alleged."