The decision against Maria LourdesSereno drew to the Manila court some 2,000 protesters who echoed charges that the sacking posed a grave threat to the nation's democracy.
Sereno, the country's first female chief justice, is one of several high-profile critics who have found themselves targeted after speaking out against the president.
"Sereno is found disqualified from and hereby adjudged guilty of unlawfully holding and exercising the office of the chief justice," court spokesman Theodore Te told reporters.
"The decision is immediately executory without further need of action from the court," Te said, adding the vote was 8-6 against Sereno.
The Supreme Court case against Sereno alleged she failed to file statements of assets and liabilities in previous years -- accusations she categorically denied.
Separately, Sereno is also facing an impeachment effort in the lower House of Representatives, a move which critics allege is part of a wider campaign by Duterte to destroy foes and create one-man rule.
The vote "ushers in another era of another dictatorship as the Court... puts an end to the last gasps of a dying constitutional democracy", Senator Leila de Lima, a jailed Duterte critic, wrote in a statement.
The Philippines lived under martial law a generation ago, when dictator Ferdinand Marcos used military rule to suppress his critics.
'Harassment and persecution'
Minutes after the decision was announced, a smiling Sereno emerged from the Supreme Court building to tell her supporters the fight was not over.
"This day is not the end, this is just the beginning," she said, without specifying her next move.
"Let us set aside our differences because there is a greater and stronger enemy that we must all face," she told the cheering throng.
The national lawyers group, Integrated Bar of the Philippines, said it will closely scrutinise the decision because it believes only the Senate has the power to dismiss a Supreme Court justice in this case.
Duterte and Sereno first clashed in 2016 when she criticised his order urging judges whom he linked to the illegal drug trade to turn themselves in as part of his crackdown.
Police say they have killed around 4,200 drug suspects in Duterte's nearly two-year-long campaign but rights groups allege the actual number is three times higher.
Duterte's spokesman released a statement saying: "the High Court has spoken. Let us respect its decision."
Sereno had resisted the ouster effort, saying in March: "The current state of the nation is one where perceived enemies of the dominant order are considered fair game for harassment, intimidation and persecution."
Other Duterte critics have also been ousted, punished or threatened, including de Lima, the Commission on Human Rights and an anti-corruption prosecutor who investigated allegations that Duterte has hidden wealth.
The president last month urged lawmakers to "fast-track" Sereno's removal, warning that otherwise "I'll do it for you".
She has been accused of failing to pay about two million pesos ($40,000) in taxes as well as falsifying and tampering with court resolutions.
She is also alleged to have spent excessively on "opulent" hotels and a luxury official vehicle, as well as flying business or first class.
Sereno is the second chief justice in a row to be ousted in the Philippines. Lawmakers convicted her predecessor, Renato Corona, in 2012 of corruption.
Then-president Benigno Aquino said the sacking was part of his anti-graft reforms, but critics said he was trying to ensure his control of the court.
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