Thailand's Constitutional Court on Wednesday dismissed Prime Minister Srettha Thavisin for "grossly" violating ethics by appointing a minister who had served jail time, raising the spectre of political upheaval and a shakeup in the governing alliance.

Real estate tycoon Srettha becomes the fourth Thai premier in 16 years to be removed in verdicts by the same court after its judges ruled 5-4 in favour of dismissing him for failing to perform his duty with integrity.

Srettha's exit after less than a year in power means parliament must convene to choose a new premier, with the prospect of more uncertainty in a country dogged for two decades by coups and court rulings that have brought down multiple governments and political parties.

"The court has found 5-4 that the accused is terminated as prime minister due to his lack of honesty," the judges said, adding his behaviour "grossly breached ethical standards".

The ruling underlines the central role the judiciary has played in Thailand's unrelenting crisis, with the same court last week dissolving the anti-establishment Move Forward Party after ruling its campaign to reform a law against insulting the crown risked undermining the constitutional monarchy.

Move Forward's surviving lawmakers regrouped on Friday under a new party.

Parliament will convene on Friday to vote on a new premier, Srettha's chief of staff, Prommin Lertsuridej, a veteran of the Pheu Thai party, told Reuters without elaborating.

The decision also comes at a tricky time for an economy that Srettha struggled to jumpstart, with weak exports and consumer spending, sky-high household debt and more than a million small businesses unable to access loans.

"It's a negative surprise. It is a direct risk to the economy," said Nuttachart Mekmasin, a strategist at Trinity Securities, outlining key policies including a 500 billion baht ($14.3 billion) cash handout plan may be stalled.

"Consumer and business confidence will be affected," he said, "Spending and investment will slow down until the next government is formed."

The government has estimated growth of just 2.7% for 2024, lagging regional peers, while Thailand has been among Asia's worst-performing markets.

The index slipped 1.29% after the court decision, before recovering to close 0.4% down.

UNCERTAIN TRUCE

Srettha's Pheu Thai Party and its predecessors have borne the brunt of Thailand's turmoil, with two of its governments removed by coups in a long-running grudge match between the party's founders, the billionaire Shinawatra family, and their rivals in the conservative establishment and royalist military.

"I am saddened to leave as a prime minister who was found to be unethical," Srettha told reporters at Government House, adding it was possible the new government could change his policies.

"I performed my duties with integrity and honesty."

Deputy premier Phumtham Wechayachai is expected to take over as caretaker prime minister.

The ruling could rock a fragile truce between political heavyweight Thaksin Shinawatra and his enemies among the conservative elite and military old guard, which enabled the tycoon's return from 15 years of self-exile in 2023 and ally Srettha to become premier the same day.

Srettha had maintained his appointment of former Shinawatra lawyer Pichit Chuenban, who was briefly imprisoned for contempt of court in 2008 over an alleged attempt to bribe court staff, was above board. The bribery allegation was never proven and Pichit resigned in May.

According to some political experts, it is likely Pheu Thai would still have the clout to lead the next administration, after a period of horse-trading and uncertainty over who will be in charge.

"The coalition remains united," said Olarn Thinbangtieo, deputy dean of Burapha University's Faculty of Political Science and Law.

"There may be some impact on confidence, but that would be in the short term."

The next premier would need to have been nominated a prime ministerial candidate by their parties prior to the 2023 election, with Thaksin's 37-year-old daughter and party leader Paetongtarn Shinawatra among Pheu Thai's options.

If successful, she would be Thailand's third Shinawatra premier after Thaksin and her aunt, Yingluck Shinawatra.

Other potential candidates include Interior Minister Anutin Charnvirakul, Energy Minister Pirapan Salirathavibhaga and Prawit Wongsuwan, an influential former army chief who was involved in the last two coups.