Chief Minister Charanjit Singh Channi said a new advocate general will be appointed on Wednesday.
Addressing a press conference here after the Cabinet meeting, Channi said Deol had resigned a few days ago.
"The Cabinet today accepted it (resignation)," said Channi, adding that it would be sent to the state governor.
"Tomorrow, the new AG will be appointed," said Channi, who was accompanied by Sidhu and Deputy CM O P Soni, ministers Amarinder Singh Raja Warring, Pargat Singh, Bharat Bhushan Aashu and Sangat Singh Gilzian.
The move came amid Sidhu's strong opposition to the appointments of Deol as the state's advocate general and Iqbal Preet Singh Sahota as the officiating DGP of the state.
Deol had represented former Punjab DGP Sumedh Singh Saini in cases related to the 2015 post-desecration police firing incidents.
On the issue of the DGP, Channi said a panel of senior police officers having over 30 years of experience has already been sent to the Centre.
Out of which, a panel of officers will be received from the Centre for the selection of the new DGP, he said.
With the replacement of the AG, Sidhu had his way amid unease between him and Channi over certain government appointments.
Citing personal reasons, Deol had tendered his resignation on November 1 to the chief minister but his resignation was not accepted.
Sidhu was learnt to have been unhappy over the non-acceptance of the resignation of Deol.
Sidhu has been targeting his own party government over the appointments of Deol and Sahota, who was the head of the special investigation team formed by the previous SAD-BJP government to probe desecration incidents.
On Monday, Sidhu in a press conference had said, "Choose compromised officers or the PPCC chief."
After Sidhu's outbursts, AICC's Punjab affairs in-charge Harish Chaudhary had held a meeting with the CM and Sidhu.
Sidhu had stepped down in September as the Punjab Congress chief while questioning the appointments.
Last week, Sidhu said that he had withdrawn his resignation as the Punjab Congress chief but had also put a precondition that he would resume the charge the day a new advocate general is appointed in place of Deol and a panel for the appointment of a new director general of police comes from the UPSC.
A war of words between Sidhu and Deol had also erupted.
While Deol had accused the party's state unit chief of "spreading misinformation" and "obstructing functioning" of his office, the Congress leader had alleged that the AG's "earnest inaction was clearly subverting justice" in sacrilege and drug issues.
Deol had replaced Atul Nanda who had resigned following the resignation of Amarinder Singh as the Punjab chief minister.
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