If confirmed, the banishment of Choe Ryong Hae would be the latest in a series of executions, purges and dismissals that Kim has orchestrated in what analysts say is a further strengthening of his grip on power since taking over in late 2011.
The office of lawmaker Shin Kyung-min said the National Intelligence Service disclosed the information in a closed-door briefing for members of the legislature's intelligence committee.
It quoted the NIS as saying that Choe's demotion was related to the alleged collapse of a water tunnel at a power station. Choe was reportedly responsible for the construction of the power station in North Korea's northeastern Ryanggang province.
The NIS said Choe and Kim were also at odds over youth-related policies, according to Shin's office.
The memo didn't say how the NIS obtained the information. The NIS said it could not confirm contents of its legislature briefing.
His influence is believed to have diminished in April 2014 when his top army post was found to have been given to Hwang Pyong So, who is now widely considered to be the North's No. 2 official.
Choe was still considered one of Kim's top aides and held a number of important posts, including member of the powerful Political Bureau of the ruling Worker's Party and secretary of the party's Central Committee.
The NIS told lawmakers that Kim is eventually expected to rehabilitee Choe, but didn't say when.
