The Court ruled unanimously that Ms Yingluck's order to transfer Mr Thaiwal was done in an unlawful manner and demonstrated a conflict of interest and violation of the Constitution.
The Court said in its ruling broadcast live on television for almost 90 minutes that the transfer of Mr Thawal was done with a hidden agenda and that Ms Yingluck used her status as prime minister to intervene in the transfer to benefit herself, her political party and wider family, which violated the Constitution.
The Court also said that Mr Thawil's transfer was done in an unreasonable hurry, the process was not transparent and it was unusual suspicious.
The transfer was carried out to open way for Pol Gen Priewpan Damapong, brother of Mr Thaksin's former wife, Potjaman Na Pombejra, could become national police chief.
The transfer was not done for the national interest, so her status as prime minister has ended, the Court said.
Meanwhile, the Court also dismissed caretaker Cabinet ministers involved in the Cabinet meeting to approve Mr Thawil's transfer on September 6, 2011.
Nine ministers who were in that Cabinet and still in the post in the present caretaker Cabinet and would also be removed by the court order.
They were Surapong Tovichakchaikul, Pol Gen Pracha Promnok, Kittiratt Na Ranong, Plodprasop Suraswadi, Santi Prompat, Gen Yuthasak Sasiprapha, Capt Chalerm Yubamrung, Siriwat Kajornprasart, Gp Capt Anudith Nakornthap.
The remainder of the caretaker Cabinet will continue their duties until new ministers are appointed.
The Court declined to appoint a new prime minister, saying it was beyond its authority.