Lord McAlpine, who as Alastair McAlpine was treasurer of the Tory party in the Eighties, has been a thorn in the side of John Major's government since he declared to the New Statesman last year that the Tories might benefit from a period in opposition.
He declared his support for Sir James's party, set up to promote the single demand of a referendum on the nature of Britain's membership of the European Union, as long ago as March. But it was only when he announced that he had actually joined the Referendum Party on the weekend before this month's Tory conference in Bournemouth that his expulsion became inevitable.
He was informed of the decision a week ago by the Government's chief whip in the Lords, Lord Strathclyde - two days before the Referendum Party's inaugural conference in Brighton, which he chaired.
A Referendum Party spokeswoman said: "As was made clear throughout our party conference, we believe there is no incompatibility between being a member of a traditional political party and a supporter of the Referendum Party.
"We do not ask people to abandon their traditional parties. Once we have obtained a referendum, the Referendum Party will dissolve. That is written into our constitution."
Tory officials had suggested that Lord McAlpine's party membership was a matter for his local Tory association. But, as his main home is in Venice, he does not have one.
The decision to remove the whip constitutes an embarrassment for Mr Major, who has tried to suggest that the Referendum Party is of "marginal" importance to British politics, and that its intervention in the next election would affect all parties equally.
Lord McAlpine's openness about his role as chief fundraiser for the Tories when Lady Thatcher was the Prime Minister has also embarrassed her chosen successor.
But it was the insults he heaped on Mr Major which made the removal of the Tory whip certain. The day after joining the Referendum Party, he accused the Prime Minister of "turning indecision into a virtue".
In the Euro-sceptic European newspaper, he said "a small bunch of self- confident and arrogant politicians" were stealing Britain's democratic rights.
The dilemma of Tory leaders is that, whether or not Lord McAlpine takes the party whip, his comments will be read as reflecting the views of the circle around Lady Thatcher, whose disappointment in her successor is well-known.
Lord McAlpine's disillusionment first surfaced in March 1995, when he prescribed a spell in opposition for the Tories as "a good cleansing. It does a party good. It gives it time to rethink and reform and become revitalised".