Henry Bolton has been ousted as Ukip leader after party members backed a motion of no confidence in him.
The anti-EU United Kingdom Independence Party (UKIP) was an influential force in bringing about a referendum on Britain's membership of the European Union in 2016, but has struggled to maintain its relevance since the country voted to leave the European Union.
Delegates at an extraordinary general meeting of the party in Birmingham voted 867 to 500 to oust Bolton, the BBC reported, after he was reprimanded for having an affair with a model who reportedly made racist comments.
The party announced Gerard Batten MEP would take over as interim leader.
Bolton publicly fell out with the party's national executive committee, which had tried to remove him after his 25-year-old lover, Jo Marney, made offensive comments about Prince Harry's fiancée Meghan Markle in text messages to a friend.
Adding it had become "untenable" for Bolton to continue as leader, UKIP co-founder Batten told the crowd: "UKIP has to continue because we are the only opposition".
Mr Bolton said that as well as a supportive text message from Jo Marney he had also had a good luck message from his wife Tatiana Smurova.
"The alternative is for the party to carry down the path of self-destruction into irrelevance".
This week a court ruled the party was liable for some costs in a defamation case against one of its members of the European Parliament.
However, the possible appointment of Mr Batten to lead UKIP would prove controversial after he previously branded Islam a "barbaric, regressive ideology" in the wake of last year's Manchester terror attack.
It is estimated the party will have to stump up at least £200,000.
Writing in the Daily Telegraph on Friday, Mr Farage said: "I believe it would be better to allow Mr Bolton, with all his faults, the chance to turn UKIP into an electoral machine again".
Last month, UKIP treasurer John Bickley admitted that the party had been "living hand to mouth since 2015".
The party's former head of communications, Gawain Towler, was asked to take a significant pay cut before he quit earlier this month after 13 years in the role, a senior UKIP source told Business Insider.