Roger Vangheluwe, 87, resigned as Bishop of Bruges in 2010 after admitting he had abused one nephew for 13 years. A year later, he admitted to abusing a second nephew, while saying he did not consider himself a paedophile.
Belgian prosecutors said at the time that the abuse had taken place too long ago for Vangheluwe to be charged. The justice minister urged the Vatican to impose a stiff punishment on him.
The Belgian Catholic Church said on Thursday that the pope had removed Vangheluwe's clerical status. Prime Minister Alexander De Croo said the Belgian government had urged the Vatican to act quickly.
"This is the right decision. It comes late but is a necessary step for the victims in their search for justice," he said on social media platform X.
The Belgian Church said its bishops had repeatedly requested that Vangheluwe be expelled and considered it "shameful" that he officially remained a bishop and priest, albeit under tight restrictions.
The church said he would remain in the abbey that currently houses him and live in isolation.
The Roman Catholic Church has been rattled to the core by clergy sexual abuse scandals around the world. Pope Francis has tried to impose order, but his critics say more should have been done to root out abusive clergy and help their many victims.