Archbishop Joseph Kurtz of Louisville will run the diocese in Holley's absence, the Vatican said.
A Vatican spokesman said that Holley was not removed because of the church's ongoing clergy sex abuse scandal.
"It's about management of the diocese," said Vatican spokesman Greg Burke, "not abuse-related."
In a statement, the Diocese of Memphis said Holley's removal follows an "apostolic visitation" -- churchspeak for a Vatican-led investigation -- in June 2018. The diocese also said there had been "several efforts to restore peace and serenity," which apparently failed.
The Vatican investigation centered on Holley's reassignment of a large number of priests to new parishes and his hiring of a Canadian priest to a prominent post, according to the Memphis Commercial Appeal. The priest later resigned from the post.
In a statement, Kurtz said: "I am eager to work with the priests, curia, and faithful of the Diocese of Memphis to promote stability, peace, and healing until Pope Francis appoints a new bishop."
The archbishop continued, "I ask for prayers for Bishop Martin Holley as he departs from this local church and for the entire Church of Memphis. Let us pray for one another during this time of transition."
Holley was named bishop of Memphis in 2016 by Pope Francis, according to his online biography. Now 63, Holley was born in Pensacola, Florida, where he was ordained a priest in 1987.
In 2004, Holley was appointed as an auxiliary (assistant) bishop for the Archdiocese of Washington by Pope John Paul II.
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