The Vatican's action came 18 hours after O'Brien became the first American bishop ever charged with a felony, The Arizona Republic reported.
As apostolic administrator, Sheehan will have full authority to oversee the diocese until a new bishop is named, a process that could take several months.
O'Brien, 67, has been in seclusion since he was released on $45,000 bond late Monday on the felony charges of leaving the scene of a fatal accident.
Earlier this month, O'Brien avoided a possible criminal indictment on charges of obstruction of justice by agreeing to make reforms and surrender some of his authority in sexual abuse cases.
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