Bannon's appointment in January had raised fears of politicization of the top intelligence body.
A White House aide said the move isn't a demotion for Bannon, adding that his appointment to the NSC was to monitor National Security Adviser Michael Flynn.
Flynn was fired in February.
Trump removes Steve Bannon from National Security Council
Who is Steve Bannon?
Bannon was born in Virginia in 1953. He went on to serve in the navy and then completed his MBA from Harvard.
He became an independent political documentary filmmaker, making movies on Republican leaders Ronald Reagan and Sarah Palin.
Bannon was the head of Breitbart News, a populist, conspiracy-tinged right-wing website that publishes anti-establishment content and has been accused of promoting xenophobia and misogyny.
Bannon's appointment to NSC criticized by Democrats
Bannon's appointment was condemned by Democrats and civil rights groups.
"It is easy to see why the KKK (Ku Klux Klan) views Trump as their champion when Trump appoints one of the foremost peddlers of white supremacist themes and rhetoric as his top aide,'' a top Democrat lawmaker said.
Bannon has been accused of being a white supremacist.
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28 Aug 2016
Trump's Campaign Chief faced domestic abuse charges
A 1st January 1996 California police report states that Steve Bannon was accused of domestic violence 20-years ago.
It details an altercation between Bannon and his then-spouse Mary Louise Piccard, that left her with red marks on her left wrist and on the neck's right side.
The charges included misdemeanor, domestic violence, dissuading a witness, that were dropped in August 1996, leading to divorce.
Breitbart accused of being alt-right mouthpiece
Under Bannon, Breitbart started backing the Trump campaign. Breitbart has been accused of becoming the alternative right (or alt-right) movement's mouthpiece. The movement is a loose online group of youth who embrace "white identity" and have conservative views on immigration, race, LGBT and gender issues.
Bannon credited as controversial Muslim travel ban's architect
In August 2016, Trump appointed Bannon as campaign CEO.
Trump gave Bannon the crucial White House role following his election victory.
Bannon was credited as the brains behind the Trump's controversial decision to ban travellers from seven Muslim-majority countries.
In an unprecedented move, Trump had signed an executive order placing Bannon in the NSC at the expense of the military's joint chiefs of staff.