At an extraordinary general meeting in the central English city of Birmingham, activists voted by 867 to 500 to endorse the no-confidence motion.
Mr Bolton said he still has "strong affections" for his former girlfriend who sent offensive messages about Meghan Markle, and compared the scrutiny of his private life to that faced by Diana, Princess of Wales.
Party veteran Gerard Batten, a founder of Ukip, was announced as the interim leader, while a new leadership election will be held within 90 days.
Writing in the Daily Telegraph on Friday, Mr Farage said: "I believe it would be better to allow Mr Bolton, with all his faults, the chance to turn UKIP into an electoral machine again".
Bolton, a former army officer, is the third elected leader since Farage stepped down and has vowed major reform of the party.
The ex-Army officer had lasted less than six months in the post and the pro-Brexit party will now have to go through its fourth leadership election since the European Union referendum.
"Henry Bolton has been removed by the democratic decision of the membership", outgoing chairman Paul Oakden told the audience, to cheers from the floor.
In the run-up to the vote, Bolton has hit out at the media interest in his private life following the breakdown of his marriage to Tatiana Smurova, which he said was on par with the Profumo affair and Diana's relationship with Dodi Fayed.
"I think it's going to be hard to unite the party, what we have effectively had today is a rejection of a new draft constitution, a reorganisation and indeed a new way of doing politics", he said.
Senior Ukip figure Suzanne Evans told the Press Association ahead of the vote that it was "crunch time" for the party and Mr Farage should again take the helm.
The cash-strapped party faces a separate series of challenges, including the prospect of a hefty legal bill over a defamation action brought by Rotherham's three Labour MPs against MEP Jane Collins.
"The people who started complaining about this were people on the NEC, none of whom voted for me in the leadership election", he said.
He declined to elaborate and did not answer when asked if one was to set up an alternative party.
Prior to the motion, Henry Bolton said: "It's not about whether I go, specifically, it's about whether or not the party goes through another leadership contest and an interim leadership beforehand".
"It may be too late to save UKIP, but you never know".