French daily Le Monde published this week a video taken by smartphone showing Benalla manhandling and striking a protester while wearing a police helmet and visor during a May 1 demonstration.
Condemning the "unacceptable behaviour", Mr Macron's spokesman Bruno Roger-Petit said that Mr Benalla was removed from organising security for presidential trips.
Critics say the incident reinforces the image of Macron as a man out of touch with the French people.
Three police officers have been suspended for giving Mr Benalla CCTV footage of the incident, which has been a serious embarrassment for Mr Macron.
When the 21-year-old saw Benalla grab a woman by the neck and attack an already "neutralized" male protester, he chose to confront him on camera.
Mr Montebourg told Le Monde that Mr Benalla was sacked for misconduct after causing a vehicle accident in the minister's presence and wanting to flee the scene.
Benalla, who is not a police officer and previously worked as bodyguard, had been given permission to observe police operations during a day off for the 1 May public holiday, Macron's office said.
The Paris prosecutor, which was unaware of the matter before Thursday, launched a preliminary investigation against Alexandre Benalla on suspicion of violence, usurping the function of a police officer and using signs reserved for public authorities.
The uproar over Benalla's punishment - a two-week suspension and a change in responsibilities - upended regular business in parliament with lawmakers aghast that the security official still has an office in the presidential palace two-and-a-half months after the incident, and that he was not immediately reported to judicial authorities.
The clip caused outrage among politicians of all sides when it emerged this week and in a bid to quell the growing scandal the Elysée Palace confirmed on Friday that dismissal proceedings had begun against Benalla after new information came to light. "This man is the eyes and ears of the prince (Mr Macron)".
Before he joined the presidential staff he had the role of head of security during Mr Macron's election campaign in 2017.
"This video is shocking".
Labour unions hold demonstrations every year on May Day in France, which often lead to police intervention.
Prominent members of Macron's government struggled to explain the situation, especially when pressed on the question of a potential legal double standard that had applied to an administration official.
After the 15-day suspension, Benalla was brought back into the president's immediate entourage.