A Rashtrapati Bhawan communique said the President had received a recommendation to this effect from the Union Government and taken a decision after taking a considered view on the issue.
The development comes days ahead of an announcement of a schedule for general elections.
The three-member Commission is widely expected to announce poll dates in a day or two.
Chawla is known for his proximity to the Congress party. Two years back, he was alleged to have taken money from Congress politicians for his family trust.
In 2006, the BJP submitted a petition to President A.P.J. Abdul Kalam seeking the removal of Chawla from his office under Article 324(5) of the Constitution. BJP Leader L K Advani had alleged that Chawla was close to the Congress Party.
When Kalam forwarded the petition to the Prime Minister, the UPA Government found no merit in the BJP allegations.
Later, the BJP took its demand to the Supreme Court where its arguments seemed to make no headway. It withdrew the petition in August 2007.
In January 2008, BJP leaders took the matter up with the CEC Gopalaswami who served a notice on Chawla.
However, Gopalaswami has claimed that his adverse recommendation, which comes a whole year after BJP's complaint, is based on his own experience and observations of Chawla's work as Election Commissioner.
In his affidavit submitted to the Supreme Court, Gopalaswami has said that the CEC had suo motu (where an agency acts on its own cognizance) power to recommend the removal of an Election Commissioner.
Gopalaswami will retire as CEC on Apr 20 and Chawla is expected to succeed him.