BEIJING (Reuters) - China's ruling Communist Party announced on Sunday the removal of the military chief of restive Xinjiang from the region's governing council, following a car crash in Beijing's Tiananmen Square blamed on Islamist militants from Xinjiang.

The official Xinjiang Daily said in a brief front page report that Peng Yong had been sacked as a member of Xinjiang's Communist Party Standing Committee, and would be replaced by Liu Lei, an army veteran with more than a decade's experience in the region.

The newspaper gave no reason for the move, but the party frequently removes top officials following such incidents as it seeks to apportion blame.

The incident was especially embarrassing for the stability-obsessed party given the billions of dollars it spends every year on domestic security, not only in Xinjiang but across the country, and that the crash happened in the heart of Beijing.

Peng was appointed commander of the Xinjiang military region in July 2011. It is likely that he will also be relieved of his military duties.

Real power in China lies with party bodies rather than government ones, as that is where the key decisions are made.

The government has blamed Islamist extremists plotting holy war after a vehicle police said was laden with gasoline ploughed into bystanders outside the front entrance of the Forbidden City, on the north of Tiananmen Square.

The three people in the car died, as did two tourists. More than 40 were injured. Police have also detained five suspected accomplices.

Security has been stepped up in Beijing and Xinjiang following the incident.

Beijing party chief Guo Jinlong has urged the police to improve their capacity to collect intelligence and take precautions against further attacks, the city government-run Beijing Daily said on Sunday.

Guo urged police and security forces to "look for vulnerable links" and "learn the lessons" from the incident, the report said.

Xinjiang is home to the Muslim Uighur minority, many of whom chafe at China's restrictions on their religion, culture and language, though the government says they are granted broad freedoms.

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Xinjiang has been wracked by unrest in recent years, blamed by the government on the separatist East Turkestan Islamic Movement which Beijing believes was also responsible for last week's incident.

Rights groups, exiles and some experts say, though, that there is little evidence of a cohesive extremist movement operating in Xinjiang.

In 2009, some 200 people died in Xinjiang's regional capital Urumqi during riots which pitted Uighurs against the majority Han Chinese.

(Reporting By Dominique Patton and Ben Blanchard; Editing by Ron Popeski)