Labour lost the Hartlepool by-election to the Conservatives along with a large number of council seats.
Ms Rayner has also lost her position as Labour's campaign coordinator though she remain's the deputy leader.
However her removal as chair is reportedly already causing anger within the party.
Jessica Elgot, The Guardian’s deputy political editor, tweeted: “Labour MPs pretty godsmacked at apparent move to pin blame for elections at Angela Rayner – astonishment across the board from left to right.
“Aside from anything else the women’s PLP [Parliamentary Labour Party] will go bats**t.”
Gaya Sriskanthan, co-chair of pro-Corbyn group Momentum, condemned the decision.
She commented: “Angela Rayner’s sacking is blatant scapegoating.”
Left-wing writer Owen Jones commented: “Keir Starmer and his team are trying to scapegoat Angela Rayner for Labour’s disaster.
“Trying to pin the blame on a working class women for their lack of vision or strategy, their lack of answers to the country’s problems. The absolute pits.”
He later added: “Keir Starmer is proving to be the worst of all worlds – unprincipled and unelectable.
“It’s time for Labour MPs to have a very long think.”
Lewis Goodall, Newsnight's policy editor, warned this could unite the Labour left and soft-left against Sir Keir.
He tweeted: “Labour MPs are completely gobsmacked tonight.
“Considering how bad the results were things were relatively calm in the Labour Party until, well, just now.
“Clear from early conversations with figures on the left of the party that they consider this move completely incendiary.
“Massive risk for Starmer is this unites the left and soft left against him.”
The Conservatives won the Hartlepool by-election by 52 percent of the vote to 29 percent.
Hartlepool, which voted to leave the EU in 2016, had previously been a Labour stronghold.
The Tories took control of councils for Harlow, Northumberland, Pendle, Nottinghamshire, Nuneaton, Dudley, Cornwall, Basildon and Maidstone.
Speaking to The Times reporter Patrick Maguire one Labour insider said Ms Rayner would be replaced with someone more prepared to confront the left.
They said: “She's better off with a brief, give the party job to someone who has the guts and the determination to finally sort the party out - and someone who won't give two hoots about polishing their halo for the soft-and harder-left.”
Sadiq Khan is on track to be re-elected as the Labour mayor of London, though on a tighter margin than expected.
Labour also took the West of England metro mayoralty from the Tories.
More to follow…