Lugo described the vote as a coup and has vowed to fight his position at the summit of Mercosur trade bloc member states, opening this week in the west Argentine resort of Mendoza.
Mercosur is backing Lugo and a statement from the group condemned Lugo's removal as a "legislative, congressional or institutional coup," in which the embattled president was denied time to defend himself against an "express" impeachment vote.
Lugo found himself pitted against congressional foes after 17 riot deaths, caused when police clashed with squatters in a simmering dispute over unauthorized housing.
Mass migration to the capital from impoverished rural areas has created slums, and reinforced armed drug overlords' hold on the vulnerable migrant workers' shanty town communities.
The Union of South American Nations also protested Lugo's removal and issued a statement that his ouster didn't respect due legal process.
The political crisis has thrown a dysfunctional economy into further disarray, not helped by Venezuela's instant decision to cut off oil supplies that Paraguay receives on reduced and deferred payment basis.
Paraguay has been seeking energy security for years. Lugo's government received a boost when in May British energy producer Amerisur Resources Plc said it received an oil prospecting permit from Paraguay's Ministry of Public Works and Communications to dig deeper into the Espartillar block in the arid and sparsely populated Chaco region.
Chaco was the scene of a territorial war involving Paraguay and Bolivia from 1932-1935.
Paraguay has abundant renewable energy resources, mostly hydroelectric power, which are underexploited. Lugo's government earlier said it aims to reduce dependence on fossil fuels, especially in isolated rural areas that do not have access to other fuels.
Poor distribution of electricity remains a major barrier to development in rural Paraguay.
In contrast Paraguay is one of the largest bulk exporters of electricity through joint hydroelectric power generation with Argentina and Brazil. Despite abundant production, the government has been unable to extend the distribution networks where they are needed.
Hydrocarbon prospecting in the Chaco area has been encouraged by its proximity to the oil-producing Lomas de Olmedo region in Argentina.
The World Bank is also pushing for a plan to "increase the availability, quality and reliability of power supply in Paraguay, thereby fostering economic growth and improving the country's competitiveness." More than $100 million will be spent on the project by the end of 2015.
However, the new political crisis threatens to create a situation similar to a Supreme Court-led coup that ousted Jose Manuel Zelaya from presidency on June 28, 2009, and plunged Honduras into a crisis and confrontation between interest groups.
Brazil and Argentina, which share hydroelectric power generation in Paraguay and have direct interest in the country's infrastructure operating without hindrance, announced they backed Lugo's fight back to power.
All Mercosur presidents Saturday openly rejected Lugo's removal. Argentine Foreign Minister Hector Timerman anticipated that Mercosur and Unasur countries would sanction the new government in Paraguay for having broken "democratic order."
The leaders also warned they would consider punitive measures against the new rulers in Asuncion.
New president Francisco Franco, who replaced Lugo last Friday, confirmed he had received communication suspending Paraguay from Mercosur and denied "any kind of coup," adding the Paraguayan constitution had been fully complied with during Lugo's removal.
Franco said he would send new ministers to the Mendoza summit. Argentina summoned both houses of congress to consider sanctions against Franco's government.
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