By Shihar Aneez and Ranga Sirilal
COLOMBO, Jan 13 (Reuters) - President Mahinda Rajapaksa removed Sri Lanka's chief justice from office with immediate effect on Sunday, defying a Supreme Court ruling that the impeachment process was illegal and setting the stage for a possible constitutional crisis.
Rajapaksa's ruling party voted to impeach Shirani Bandaranayake, Sri Lanka's first female chief justice, on Friday.
The move has caused an outcry among opposition lawmakers, religious leaders and lawyers, prompted the United States and United Nations to voice concern for the integrity of justice in the South Asian state, and may alarm foreign investors.
"The president has said in the removal statement that he was in agreement with the request for the removal of the chief justice from office made in the said address of parliament," Rajapaksa's office said in a statement.
Bandaranayake's lawyers confirmed that she had been notified of her dismissal, but declined to say if she would leave office.
The Court of Appeal has also nullified the ruling of a parliamentary panel which found Bandaranayake guilty of financial irregularities and failure to declare assets.
Lawyers across Sri Lanka boycotted courts for a second day running on Friday in protest at the vote.
A black cloth was hung at the entrance of the Supreme Court building in Colombo, and some lawyers inside covered their mouths with black cloth or wore black headbands.
Lawyers Collective, a judiciary activist group, has urged all Supreme Court judges not to accept Rajapaksa's appointment of a new or acting chief justice.
"The politically motivated process of removal of the Chief Justice was nothing but a misuse and abuse of constitutional provisions and Standing Orders," the lawyers collective said in a statement on Sunday.
"The conscience of the nation and the bar is disturbed and is in anguish - and will never accept the illegal and unconstitutional removal of the Chief Justice."
The clash between the government and judiciary has underlined the power wielded by Rajapaksa and his family in the island nation, where he has been president since 2005.
Relations between Rajapaksa and Bandaranayake soured after the chief justice ruled in September that a bill submitted by the president's younger brother, Basil Rajapaksa, proposing an 80 billion rupee ($614 million) development budget, must be approved by nine provincial councils.
The ruling party filed an impeachment motion on Nov. 6 and a month later a parliamentary panel appointed by Speaker Chamal Rajapaksa, the president's elder brother, found her guilty of three out of the five charges it probed.
Political risk consultancy Eurasia Group said in a note published on Thursday that foreign investors' concerns about the rule of law in Sri Lanka had been heightened by the row, but that the domestic political costs for Rajapaksa were minimal.