The removal of Alan Trew, general manager of the Cardiff Royal Infirmary group of hospitals, was said to have happened because he had voiced his concerns about funding.
Ian Grist, chairman of South Glamorgan Health Authority, refused to reveal the reasons behind the suspension but conceded that the financial situation at the hospitals had been causing concern for some time.
A health authority spokesman said later that the matter was not a 'disciplinary' action and that the case would be reviewed next week.
Last night Rhodri Morgan, Labour's health spokesman in Wales, condemned the move. His Cardiff West constituency covers the group's other three hospitals, Lansdowne, Prince of Wales and Rookwood, all of which are facing closure over the next five years.
'He has been gagged for speaking the truth about the health service despite Virginia Bottomley's (the Secretary of State for Health's) promise that whistle-blowers would be protected,' he added.
Mr Morgan accused the authority of underfunding the group of hospitals with the result that management was now in discussions with the unions about making 30 nurses redundant across the four units.
If the unions fail to avert the cuts, it is believed they would be the first redundancies of nurses since the National Health Service came into existence 44 years ago.
The Labour MP added that he believed Mr Trew's fate had been sealed after he spoke to Jon Jones, the MP for Cardiff Central, who had defeated the Tory holder of the seat, Mr Grist, at the last election.
Controversy surrounded Mr Grist's appointment as chairman of the health authority during the summer.
However, last night Mr Grist dismissed suggestions that suspension of Mr Trew, who has been with the health authority in various roles since 1974, had anything to do with discussions he might have had with Mr Jones.
John Jenkins, a spokesman for the health authority, said: 'Alan Trew has been relieved of his duties and is on suspension on full pay. It is not a disciplinary action and will be further considered next week.'