Foreign Office minister Mark Field referred himself to the Cabinet Office for investigation after the footage emerged showing him pushing the protester against a column, then grabbing her by the neck and marching her out of the Mansion House, where Chancellor Philip Hammond was giving a speech.
A Number 10 spokeswoman confirmed Mr Field had been suspended while government and police inquiries take place.
"The police have said they are looking into reports over this matter and Mark Field has also referred himself to both the Cabinet Office and the Conservative Party.
"He will be suspended as a minister while investigations take place."
Labour branded video footage of the incident "horrific" and called for Mr Field to be sacked from his job in leadership hopeful Jeremy Hunt's ministerial team.
Conservative Party chairman Brandon Lewis said he had spoken to Chief Whip Julian Smith and there would be an investigation.
City of London Police said they were looking into a "small number" of third-party reports of an assault at the Mansion House event.
Greenpeace protesters disrupted the black-tie event on Thursday night to demand action to tackle the climate emergency.
Mr Field apologised "unreservedly" to the activist on Friday morning.
In a statement to ITV, Cities of London and Westminster MP Mr Field said: "In the confusion many guests understandably felt threatened and when one protester rushed past me towards the top table I instinctively reacted.
"There was no security present and I was for a split-second genuinely worried she might have been armed.
"As a result I grasped the intruder firmly in order to remove her from the room as swiftly as possible."
He added that he "deeply" regretted the incident and would co-operate fully with a Cabinet Office investigation.
Tory Party chairman Mr Lewis told ITV's Good Morning Britain: "I've spoken to the Chief Whip this morning and there will be an investigation from our end."
He said it was "very hard to defend" the footage, adding: "It's hard for anybody to look at that and not be astonished at what they have seen."
But Tory MP Sir Peter Bottomley defended Mr Field's actions, telling the Press Association he had done nothing wrong.
Sir Peter said: "The woman clearly was trying to create a fuss.
"Most viewers would say it's good that she didn't succeed."
Sir Peter, whose wife Virginia - now Baroness Bottomley - was assaulted while health secretary, said if a police officer had done what Mr Field did "would there have been a fuss? The answer is no."
She added: "I'm sure I'm not the only one who is wondering why no one intervened. So much violence does not seem justified. An investigation needs to take place as soon as possible."
When contacted by the Press Association, Foreign Secretary Mr Hunt, who is Mr Field's boss, responded with a text saying "sorry can't talk now".