The interim decision to strip Renan Calheiros, 61, of his duties worsens the outlook for Temer as he struggles to lift Latin America's biggest economy out of crisis.
It also deepens the perception that the country is inextricably mired in political graft.
The suspension ordered by judge Marco Aurelio Mello has "immediate effect," but needs to be confirmed by a majority of judges on the supreme court bench, a court official said yesterday.
The supreme court last week ordered Calheiros to face trial for alleged embezzlement. He has denied accusations he used public funds to make maintenance payments to a woman with whom he had a child.
In a separate case, Calheiros is also among numerous top politicians including an ex-president and lawmakers accused of helping steal billions from state oil firm Petrobras.
Protesters on Sunday held demonstrations demanding Calheiros' ouster, with a crowd in Brasilia chanting "Lock Renan up!" as they performed a mock funeral with a coffin inscribed "corruption."
Temer went from vice-president to president this year when he and Calheiros drove proceedings that saw Brazil's previous president, Dilma Rousseff, impeached for fiddling the government's books.
Rousseff's own predecessor, Luis Inacio Lula da Silva, is facing three corruption-related court cases related to the Petrobras affair.
Although Temer has not been formally investigated himself over the Petrobras scandal, it has forced the resignation of several of his ministers.
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