Labour leader , who said he would have a no tolerance approach to anti-semitism within the party when taking over from , asked Ms Long-Bailey to "step down" after she posted on Twitter earlier on Thursday.
The former Labour leadership contender posted an article about Maxine Peake to Twitter, with the caption "Maxine Peake is an absolute diamond".
Labour said the article "contained an anti-Semitic conspiracy theory", though Ms Long-Bailey says her post "wasn’t intended to be an endorsement of all aspects of the article".
In an interview for the Independent, Ms Peake claimed “the tactics used by the police in America, kneeling on George Floyd’s neck, that was learnt from seminars with Israeli secret services" - a claim denied by Israel.
Ms Long-Bailey said: "I retweeted Maxine Peake’s article because of her significant achievements and because the thrust of her argument is to stay in the Labour Party."
Sir Keir said it was "wrong" to share the article because it "contained anti-Semitic conspiracy theories".
“I have therefore stood Rebecca Long-Bailey down from the shadow cabinet.”
In comments reported by the BBC he said: “I’ve made it my first priority to tackle anti-Semitism and rebuilding trust with the Jewish community is a number one priority for me.”
A spokesperson for Sir Keir Starmer said: “As leader of the Labour Party, Keir has been clear that restoring trust with the Jewish community is a number one priority.
"Anti-Semitism takes many different forms and it is important that we all are vigilant against it.”
Former frontbencher Long-Bailey said she had "learned that many people were concerned" by Ms Peake's claims within the article.
“I wished to acknowledge these concerns and duly issued a clarification of my retweet, with the wording agreed in advance by the Labour Party leader’s Office, but after posting I was subsequently instructed to take both this agreed clarification and my original retweet down," she wrote on Twitter.
"I had asked to discuss these matters with Keir before agreeing what further action to take, but sadly he had already made his decision."
She added: "I am clear that I shall continue to support the Labour Party in Parliament under Keir Starmer’s leadership, to represent the people of Salford and Eccles and work towards a more equal, peaceful and sustainable world."
The Jeremy Corbyn ally received immediate support from the ex-leaders former right hand man, John McDonnell, who said "criticism of practices of Israeli state is not anti-Semitic".
He went on: "I don’t believe therefore that this article is or Rebecca Long-Bailey should’ve been sacked. I stand in solidarity with her."
Ms Long-Bailey was one of the favourites to win the Labour leadership election before Sir Keir won a landslide in the election.
In the end she was only able to win 27.6% of votes - Sir Keir won 56.2%.
She was viewed by many as the continuity candidate for former leader Mr Corbyn, who faced widespread calls of anti-Semitism within the party while he was in charge.
Instead of purging the front bench of Mr Corbyn supporters, Sir Keir put Ms Long-Bailey in his shadow cabinet but vowed he would act immediately against anti-semitism.
An investigation into the Labour Party by the Equality and Human Rights Commission was called to look into claims of anti-semitism.
Mike Katz, National Chair of the Jewish Labour Movement said Ms Long-Bailey's sacking "should be welcomed".
"The Labour Party must be able to implement the kind of cultural and structural changes required to end institutionalised discrimination.
"We hope that the Party, at every level, reflect and learn from this action."